Preamble

The House met at half-past Two o'clock

PRAYERS

[MADAM SPEAKER in the Chair]

PRIVATE BUSINESS

DUNHAM BRIDGE (AMENDMENT) BILL

Read the Third time, and passed

Oral Answers to Questions — EDUCATION

Standard Assessment Tasks

Mrs. Roche: To ask the Secretary of State for Education how many schools he has received representations from urging him to make this year's SATs voluntary; and what proportion this is of the total number of schools in the state system.

Mr. Wells: To ask the Secretary of State for Education if he will direct the School Curriculum and Assessment Authority to consider simplifying tests at seven, 11 and 14 years of age on the principle of establishing tests that take minimal teacher and pupil time while being effective measures of achievement of basic skills.

The Secretary of State for Education (Mr. John Patten): Since the beginning of the year, the Department has received about 6,500 letters about testing, making many different points. I have asked Sir Ron Dearing to review the national curriculum and assessment framework with the aim of simplifying it while retaining the key features of clear teaching objectives, regular tests and high standards. I shall, with permission, make a statement about further arrangements later today.

Mrs. Roche: Given the widespread opinion among parents, school governors, teachers and his own advisers, why cannot the Secretary of State give a clear and unambiguous commitment to withdraw those fatally flawed tests this year?

Mr. Patten: The tests to which the hon. Lady has referred—for example, the tests for seven-year-olds—have been proceeding satisfactorily since 1991. They were taken again in 1992. In most primary schools up and down the land, they have been successfully completed already.

Mr. Wells: May I urge my right hon. Friend to continue and to persist with testing? Surely the original idea was that the tests should be short, sharp and easily marked, and that they would lead to a proper assessment of the place that each child had reached. There would then be

possibilities of remedial action and teaching could be accelerated to higher standards for those able to achieve them. Is not that the objective?

Mr. Patten: My hon. Friend is absolutely right. In the great Education Reform Act 1988, our whole aim was to begin to catch up with our competitors who had had national curricula and assessment regimes for many decades. It is the Government's intention to continue to catch up as rapidly as possible with our international competitors, while making the national curriculum and the associated testing arrangements as slim and manageable as possible—a process which we have already started with the tests for seven-year-olds.

Mrs. Ann Taylor: Will the Secretary of State tell us how many of those 6,500 letters were in favour of the Government's arrangements for testing? Does he recall my advice to him in Education Question Time on 17 November, when I suggested that he should consult his Scottish ministerial colleagues and listen to their explanation of how they had established a system of assessment that enjoyed the confidence of parents and teachers? Why is the Scottish system so unacceptable to English Ministers? Does the Secretary of State's arrogance stretch to his ministerial colleagues? Did he hear the Prime Minister say that Ministers should curb their arrogance? To which Cabinet Ministers does he think the Prime Minister was referring?

Mr. Patten: Two things about that: The 6,500 letters that we have received since the beginning of the year contain a wide range of views because—[Interruption.] No—listen, listen. Would the hon. Lady be good enough to listen? The letters contain a wide range of views because anything at all concerning testing, assessment or the curriculum always attracts a wide range of strong and passionate concerns. One is always going to get that and I welcome it because I think that the country needs a great debate on education. The more the general public who are interested and concerned want to write in giving their points of view, the more I welcome it.
I was asked a second question, which I must answer briefly, Madam Speaker. In Scotland, they do not have a Education Reform Act or a statutory national curriculum. The system in Scotland as far as education is concerned is as different as the situation in Scotland is concerned as far as law is concerned where they have a Roman law system.

Sir Malcolm Thornton: Will my right hon. Friend confirm that a significant proportion of the letters that his Department has received about testing related to key stage 3 testing, and that much of the evidence on key stage 1 testing—which is now in force in many of our schools and which has been reformed in the light of experience over the past three years—suggests that it is now beginning to bring benefits, as recent Her Majesty's inspectorate reports have shown? Will my right hon. Friend confirm that, in this whole debate, the principle of testing is not negotiable but is an integral part of the Government's reforms?

Mr. Patten: There is not an inch between my hon. Friend and me on the issue of testing. I can certainly confirm that a number of the 6,500 letters were about key stage 3 testing. Many more were about key stage 1 testing at age seven. I must tell my hon. Friend and the House that we are awaiting the results of a ballot held by the National Union of Teachers, which wishes to stop, not only this year


but next year, teaching at all levels; I am so sorry, it wishes to stop testing at all levels—at seven, 11 and 14—not only in 1993 but in 1994, including those very successful tests for seven-year-olds which Her Majesty's chief inspector of schools yesterday commended when he launched the Office for Standards in Education's five-year corporate plan.

Mr. Steinberg: Does the Secretary of State agree that, given that the tests have proved to be flawed, that the vast majority of teachers propose to boycott them and that parents are totally against them, the tests really cannot go ahead? If the Secretary of State finds that he cannot get his own way—due to his arrogance—will he introduce legislation to force teachers to carry out the tests?

Mr. Patten: The hon. Gentleman must wait and see what is in the Queen's speech this year, next year or the year after. The hon. Gentleman has a perfectly legitimate interest, which he has declared, in the NUT. I can tell him that I have had his friend Mr. McAvoy in for a cup of tea in my Department to discuss these issues. Mr. McAvoy—who, I can reveal, I actually quite like personally, although I disagree with him profoundly on professional matters—has told me that he is totally against regular testing of children at key stages year by year and totally against the publication of results school by school.

English

Mr. Brandreth: To ask the Secretary of State for Education what representations he has received from the Queen's English Society on the teaching of spoken English; and if he will make a statement.

Mr. Patten: I have received no direct representations from the Queen's English Society, but I know that the society was one of the bodies whose evidence the National Curriculum Council took into account in framing its recent recommendations for changes to the national curriculum English, which I warmly welcome.
We believe that the proposals that we published for consultation on 15 April will help to ensure that pupils develop confidence and competence in their use of spoken English, and, more generally, will raise expectations and standards in the subject, which is critically important.

Mr. Brandreth: Does my right hon. Friend agree that the Queen's English has nothing to do with accent and everything to do with communication? Is he aware that recently the business community has reckoned that problems with literacy and numeracy are costing industry some £4·8 billion a year and that business is crying out for the Government to do something about literacy, numeracy and communication skills for our young people?

Mr. Patten: I agree entirely with my hon. Friend's points, made with his characteristically clear diction, in standard English throughout. My hon. Friend is quite right. We have been told by the adult literacy and basic skills unit that the cost to industry of young people going in without adequate skills and without being able to express themselves is between £4 billion and £5 billion a year. I hope that hon. Members on both sides of the House can agree that it is critically clear that, when youngsters leave school and make job applications, they are able to make those applications in clear written English and that they are able to answer questions in interviews in the

clearest possible way. That is why the speaking of standard English is so important and why I welcome the views of the society.

Mr. Tony Lloyd: Is the Secretary of State aware that those of us who were never learnt to speak English proper certainly do not lack the intellectual ability to discern that in these issues, as in many others, the Secretary of State is a complete Gombeen—that is an Irish expression—and nor do we lack the ability to communicate those issues? When we have a Secretary of State—I appreciate that he is a little nervous today—who tells the House about "a education" and "Mr. McAvoy who I met in my office", he is in no position to begin to educate young people up and down the country on the benefits of standard English or, indeed, any other way of communicating properly and adequately in the English language.

Mr. Patten: Not for the first time in answering the hon. Gentleman's questions, I am completely confused because of his failure to put them clearly. All that I can say is that it is critically important for all of us to be able to express ourselves as clearly as possible, as the Hansard report of what I have said will make clear tomorrow and as anyone who is listening will have heard. I hope that the hon. Gentleman shares with me—I did not understand the Irish expression that he used—the necessity for anyone applying for a job, whether they are 16, 17, 18 or any age, to express themselves clearly in standard English. That is why standard English and the recommendations of the National Curriculum Council are so important.

Universities (Tuition Fees)

Mr. Batiste: To ask the Secretary of State for Education if he monitors the promptness of payments of tuition fees by local authorities to universities.

The Parliamentary Under-Secretary of State for Further and Higher Education (Mr. Tim Boswell): Local education authorities have a statutory duty to pay tuition fees promptly by the dates specified in the Mandatory Awards Regulations. The Department takes action on any evidence of failure to comply.

Mr. Batiste: Is my hon. Friend aware that last year a number of local authorities were late in passing on tuition fees, which they had received from the Government, to universities and that there is some evidence that that pattern has been repeated this year? Is it not entirely wrong that higher education should be denied funds because of late payment by local authorities? Is it not time that the Government thought about the way in which money could be transferred direct to universities without going through the post box of local government?

Mr. Boswell: I agree with my hon. Friend that it is most unsatisfactory if payments are not made in time. It is not even in the interests of the local authorities, because they do not get interest on the money, which is lodged in a special account with the Paymaster General. It is sometimes a matter of administrative complication or failure. We most vigorously investigate those cases in which, under the existing award system, it is apparently impossible for them to pay on time, as they should.

Mr. Rooker: Will the Minister find out why the problem does not arise in Scotland and see whether he can apply the


lessons learnt there to the situation in England? Will he accept from me that, the last time I checked, universities were owed almost £100 million after the date on which payment was due? One in five local authorities is a late payer, and some local authorities pay the fees for the second term before the fees for the first term. Any half-awake local authority treasurer who is handed, effectively, control of millions of pounds of central Government funds to pass on without any penalty for late payment will work that money for his or her employer or local authority. Is it not time that some sort of interest penalty was placed on the late payment of tuition fees and at the same time, while we are thinking about it, an interest penalty paid for the late payment of mandatory award grants to students, who suffer just as badly?

Mr. Boswell: I am interested in the hon. Gentleman's comments about Scotland, have taken note of them and am aware of the situation there. We have improved the system in England. There is no advantage to local authorities, because the money lodged to their credit by the due date does not attract interest in their hands. We watch carefully for failures to pay and will tighten that up. He also mentioned the more general issue of student grants and I am concerned about any that are not paid on time. They are, or they should be, paid early in, or at the beginning of, term and that is one reason why we leave tuition fees until the end of term, to try to avoid the two becoming confused. We pursue vigorously authorities that fail to pay. There are fewer than there were, but there are still too many.

Dame Elaine Kellett-Bowman: Is my hon. Friend aware that now that the county elections are behind us, it is rumoured that Lancashire county council is proposing to abolish the appeals procedure for students seeking discretionary grants? Is not that grossly unfair to the students and further evidence of its arrogance, which has been allowed to surface now that the elections are over?

Mr. Boswell: My hon. Friend goes wider still—the nature of discretion is that it has to be exercised. I shall take a dim view of any local authority that removes its discretion by saying that it will not consider payment in a certain case.

Surplus School Places

Mr. Gapes: To ask the Secretary of State for Education how his Department determines whether a local authority has an apparent surplus of primary school and secondary school places; and if he will make a statement.

Mr. Patten: The Department for Education conducted a survey of surplus capacity in 1991, comparing the total capacity of schools in each authority with total pupil numbers. We are consulting local education authorities on the scope for reducing that surplus, taking into account demographic and other changes since the survey.

Mr. Gapes: Is the Secretary of State aware that if he moved to Ilford, South and had an eight-year-old son or daughter in year four, he would not be able to get a place for his child in seven of the 10 schools in my constituency, and in three schools he would get a place only for a catchment area child? Highlands school in Cranbrook ward has 36 children in two classes and Christchurch primary and infant school has 35 children in every class

from reception to year six. What is he going to do about it? Why is Redbridge council considering putting Portakabins on a building site to deal with the problem, yet the Government refused to allow the council to build the school that is needed in my constituency?

Mr. Patten: I appreciate the hon. Member's strength of feeling on behalf of his constituents. A basic needs formula is applied by my Department to make new school building possible when there is an established need for extra places. His question demonstrates how critically important it is for us to get to grips with the fact that there are many hundreds of thousands of surplus school places, where money is being spent on roofs and not on educating children. I hope that the hon. Gentleman will support me in our campaign to ensure that those surplus places are wrung out of the system, so that money can be transferred from where it is being wasted to where it may be needed—it is up to the hon. Gentleman's local authority to make the case.

Mr. Dickens: Can the Secretary of State tell the House whether he thinks that the criteria are working, in the sense that if there are places within a 2-mile radius of an overcrowded school, it is prohibited from being rebuilt on a new site? Our hon. Friend the Member for Mid-Worcestershire (Mr. Forth), the Under-Secretary of State for Schools, has been dealing with Holy Trinity county primary school in Dobcross, in the hills of Saddleworth. In winter 2 miles is a long way to bus children in Saddleworth, although 2 miles on the flat in an urban area is not far at all.

Mr. Patten: As my hon. Friend knows, I visited Saddleworth, at his invitation, in the winter and I know what it is like. In applying any criteria for catchment areas to schools there is a dilemma. On all occasions, we must take two things into account: first, in the interests of rural communities, we must preserve small rural schools with large catchment areas; secondly, we must make it possible for popular schools to expand. My hon. Friend the Under-Secretary of State and I have been most concerned to make advances on the latter in recent months and we hope to make announcement in the not-too-distant future.

Education Spending, Humberside

Mr. Austin Mitchell: To ask the Secretary of State for Education what has been the standard spending assessment for education in Humberside for each of the last two years.

Mr. Boswell: Humberside's education standard spending assessment rose by some 16 per cent. to £321 million in 1991–92 and to more than £342 million, including the additional grant for teachers' pay, in 1992–93—a rise of some 24 per cent. in two years. Its education standard spending assessment for 1993–94 is more than £305 million—an underlying increase of 1·8 per cent. allowing for the transfer of responsibility for most further education expenditure to the new funding council.

Mr. Mitchell: I thank the Minister for those statistics. Does he accept that the increase in Humberside's education SSA has been less than the national increase, resulting in the past three years in a cumulative loss of £3·5 million to the county? Does he further accept that Humberside's spending last year of more than 8 per cent.
over its SSA to give kids a bit better education has had to be cut because of the threat of budget capping? As a result of cutting the improvement over SSA, every school in Grimsby is losing between one and seven teachers and faces classes that much larger. Every child in Grimsby will receive an education that much worse than it should be. Does the Minister regard that as acceptable?

Mr. Boswell: I am sure that the hon. Gentleman is aware from his local knowledge that the number of pupils in Humberside is static. The national numbers show a 1·2 per cent. increase in the current year. The difference in funding reflects that specific fact. If the hon. Gentleman does not like the present formula, it is open to him at any stage to suggest an alternative formula to my colleagues in the Department of the Environment. If he can find a formula that commands universal acceptance, including among his colleagues, he will be a clever man indeed. The present formula seeks to balance all the factors in the fairest possible way between local education authorities.

Mr. Michael Brown: Is not the real position that Humberside county council simply does not know how to manage its budget? In neighbouring Lincolnshire, the local authority under Conservative control—[Interruption.] at least until last Thursday, was able, and I hope will still be able, to deliver education to the people of Lincolnshire with more resources. Does my hon. Friend agree that in Lincolnshire a higher proportion of expenditure previously went on education than is likely to be the case under the new arrangements in Lincolnshire?

Mr. Boswell: My hon. Friend is precisely right as usual. I am sure that the good work done previously by Lincolnshire county council will stand to its advantage when it is remembered in due course.

English

Mr. Anthony Coombs: To ask the Secretary of State for Education what measures he is taking to improve standards in the teaching of English in schools.

Mr. Thomason: To ask the Secretary of State for Education if he will make a statement about the proposals for the revision of English in the national curriculum.

Mr. Patten: The new proposals for English, which I published together with my right hon. Friend the Secretary of State for Wales on 15 April, aim to simplify, streamline and strengthen the present curriculum by defining more clearly the essential skills which English teaching should promote and reducing the number of requirements to be satisfied. We believe that the proposals will provide a firmer structure to ensure that pupils acquire knowledge and understanding of the English language, grammar and vocabulary, as well as the ability to speak it with confidence. They should also ensure that pupils learn about their literary heritage and study the works of our greatest writers.
In the light of consultation on our proposals in England and Wales, my right hon. Friend the Secretary of State for Wales and I expect to publish a draft order for a revised English curriculum later in the year for further statutory consultation.

Mr. Coombs: In view of the difficulties in reading and writing experienced by a significant minority of

14-year-olds and 16-year-olds according to the National Curriculum Council and given the streamlining of the English curriculum mentioned by my right hon. Friend the Secretary of State, does he agree with Sir Ron Dearing and Stewart Sutherland that it is crucial that tests for 14-year-olds in English go ahead this year? Does he further agree that it is craven almost to the extent of Pontius Pilate for the Opposition to argue in favour of tests on principle while refusing to condemn the boycott of the tests by many teachers which would damage the tests so badly in practice?

Mr. Patten: To answer the second of my hon. Friend's two questions first, many people say that they are in favour of a national curriculum and testing but are afraid to come forward and set out exactly what they mean. That behaviour has been characteristic of the Opposition throughout the past year.
On my hon. Friend's first point, testing is critical not just for 14-year-olds but for seven-year-olds. As Sir Ron Dearing and Professor Stewart Sutherland, Her Majesty's chief inspector of schools, said yesterday, the testing of seven-year-olds has not only led to some improvements and a greater expectation among teachers of what they can expect from their children, but demonstrated that two out of three children aged seven cannot read the simplest words. It is those children who need to be helped throughout their school careers and that is why we need the testing regime that we have introduced.

Mr. Thomason: Will my right hon. Friend confirm that it is totally unacceptable that 30 per cent. of 16-year-olds are unable to master the basic reading skills expected of people of that age? Will he ensure that under the national curriculum, to which he referred a moment ago, the proper teaching of English is introduced?

Mr. Patten: It is entirely right that the National Curriculum Council recommendations should concentrate to a greater extent on the basics—standard English, reading and writing. It is always right to reveal problems that have been hidden. It was only in this past year that we discovered, for the first time, that some 300,000 16-year-old school leavers going on to further education had a reading age of 14 years or less. That must be put right and that is why we need the slimmer national curriculum English orders, which are now in draft. That is why we need testing and why, and how, we must catch up with our international competitors. In France, for example, the testing of eight and 11-year-olds has gone on for decades.

Mr. Enright: Will the Secretary of State explain how affixing captions to "Pam's Paper pictures" assists in the tests for 14-year-olds? Would he not be better advised to correct the English used by the other Departments of Her Majesty's Government, which send out to us appallingly written documents in appalling numbers?

Mr. Patten: I remember that during our most recent debate on education the hon. Gentleman got into a muddle about the membership of his own union. He could not even remember the name of his union, to which he referred incorrectly. What I can say to the hon. Gentleman—[Interruption.] Order. I think that when the testing of 14-year-olds takes place this summer and the results have been published, some time after those tests have been


taken, people will wonder what on earth the fuss was about and they will see exactly what good those tests will do.

Mr. Dafis: The Secretary of State will be aware of the views of the Curriculum Council for Wales on the rather questionable entity of standard English. It strongly disapproves of the principle that children aged six or seven should have their English corrected to bring it into line with the so-called standard form. I wonder whether the Secretary of State would care to congratulate that organisation on its good sense. As part of the process of making the proposed curriculum and assessment authority for Wales genuinely autonomous, will he ensure that the council's recommendations are accepted in Wales?

Mr. Patten: As the hon. Gentleman knows, I am not responsible for education in Wales. My right hon. Friend the Secretary of State for Wales is consulting on the draft proposals from the Curriculum Council for Wales and I will ensure that the hon. Gentleman's views are drawn to his attention.

Special Needs Education

Mr. Steen: To ask the Secretary of State for Education if he will take steps to improve the process of statementing children; and if he will make a statement.

The Parliamentary Under-Secretary of State for Schools (Mr. Eric Forth): The Education Bill, now in another place, builds on the Education Act 1981, creating a new framework for all children with special educational needs. Pupils who need statements will benefit from many of the new arrangements, including time limits on the making of assessments and statements. We shall issue comprehensive, practical guidance to local education authorities and schools in the form of a code of practice.

Mr. Steen: That is all very well, but is my hon. Friend aware that there are children with special needs in some of the most deprived urban areas who have to wait up to three years before they can be tested because of the philosophical and political views of the local authority, which is opposed to the testing? Will he consider enlarging the powers of the ombudsman so that parents can go direct to the ombudsman, who can then direct local authorities, mostly Labour, to get a move on?

Mr. Forth: My hon. Friend is correct in identifying unacceptable delays in producing statements of special educational needs and also unacceptable variations between authorities. We are well aware of the problems and they are exactly what the Bill, now in another place, will address. We shall issue regulations to put time limits on the statementing process; we shall issue a code of practice to introduce a standard format for statements to ensure that all children are uniformly and properly cared for; and we shall introduce a tribunal to give genuinely independent advice and be an independent source of appeal to parents who feel that they have not been properly treated.
If my hon. Friend looks at what is in our Bill and at the code of practice and tribunals that will follow, he will see that the problems that he has identified will be dealt with fairly and firmly.

Mr. Win Griffiths: Does the Minister accept that, although what he said is likely to produce an improvement in the present situation, which all too often leads to heart-rending difficulties for parents and children, even today a lobby of the House is being organised by the Spastics Society in which several hundred parents will have terrible stories to tell of the stress that they have been caused by the statementing process? Those parents remain dissatisfied with the provisions of the Education Bill, particularly with regard to the resources to meet the needs of any child with a statement. Will the Minister now commit himself to making sure that all local education authorities have the resources to provide for the needs specified in any child's statement?

Mr. Forth: I am very much aware of the views of the Spastics Society and I keep them closely under review. The society has not yet perhaps fully appreciated the advances that the Bill represents. I hope that when it realises what the code of practice and the regulations to follow mean, it will be happier than it now appears to be with that advance.
I believe that local authorities have the right resources to provide for statements and for those children with special needs who are not covered by a statement. The fact that the proportion of children statemented by local educational authorities varies between just over 1 per cent. in some authorities to more than 4 per cent. in others demonstrates that different authorities have taken different views up to now and that parents and their children, therefore, have tended to be treated differently. The Bill will address that problem and will make uniform the content of statements and the approach to be taken. I hope that the Spastics Society and all the other special educational needs interest groups will welcome that when they have reflected on it and seen the full development of our proposals under the Bill.

Grant-maintained Schools

Dr. Liam Fox: To ask the Secretary of State for Education what recent surveys have been conducted into the operation of grant-maintained schools; and what are the main findings.

Mr. Patten: The Grant Maintained Schools Centre published the results of its latest annual survey of self-governing grant maintained schools in November last year. They demonstrate how self-governing schools are benefiting from the freedom to manage their own affairs and control their own budget.
The report by the Office for Standards in Education on 81 grant-maintained schools, published on 30 March, concluded that grant-maintained schools were adapting well to their new framework and were taking advantage of the new opportunities that grant-maintained status offered. The report also noted that grant-maintained schools were attracting increasing numbers of pupils.
There are about 775 grant-maintained schools today, either operating, approved or awaiting approval.

Dr. Fox: Will my right hon. Friend communicate that information to Avon education authority which has sent to parents in schools that wish to become self-governing a politically bigoted letter that amounts to emotional blackmail? Does he agree that that sort of malevolent


nonsense is likely to become an ever-greater feature of those councils that came under Labour or Liberal control last week?

Mr. Patten: I understand from papers that my hon. Friend has sent me that schools in the Woodspring constituency, like St. John the Evangelist, are feeling inhibited about going for grant-maintained status because of what they regard as coercion by Labour-controlled Avon council. That is why the Education Bill, presently in another place, will make it possible for at least a substantial amount of the effort that has been put into using council tax payers' funds by councils to intimidate schools to be brought to a halt, and quite right too.

Mrs. Mahon: Has not the Minister been embarking on crude bribery to get schools to opt out? If he denies that, will he explain why, in Calderdale, three grant-maintained schools recently received a capital improvement grant of £450,000 while the other 109 schools had to make do with £223,000? Is that not a straightforward bribe to get schools to opt out?

Mr. Patten: I am sorry that the hon. Lady is displeased that three schools in her area have had such large capital grants. In the past, successful schools, often voluntary-aided schools, have been consistently starved of capital funds that were much needed for modernisation of buildings and expansion. One of the reasons why grant-maintained status is so important is that it allows popular, oversubscribed schools the possibility of expanding, and quite right too.

Dame Angela Rumbold: Does my right hon. Friend agree that many of the schools that have achieved grant-maintained status would like the benefits of that status to be expressed in clear terms? Those schools not only attract more pupils, provide better education by dint of better standards and have rather better teachers, but attract a larger number of people willing to come forward as governors. All those factors should be made clear to the cantankerous Liberal and Labour-controlled authorities.

Mr. Patten: I have two points for my right hon. Friend. First, there are queues of children waiting to go to grant-maintained schools, which are extremely popular. Secondly, although, in comparison with maintained schools, I have visited only a small number of grant-maintained schools, in every one that I have visited, teachers and governors have told me that they relish their new freedom to run their affairs and their schools to their own agenda. That is a central part of the Conservative philosophy on which we were elected at the last general election.

Special Schools

Mr. Eastham: To ask the Secretary of State for Education what was the number of special schools operating in Manchester local education authority (a) five years ago, (b) last year and (c) currently.

Mr. Forth: Throughout the period in question, there have been 26 special schools and two special units in the Manchester local education authority.

Mr. Eastham: As the Minister is aware, the Government have never met their responsibilities to disabled children under the Education Act 1981. Later this

year, more special schools will be closed. Will the Government give the House a firm assurance that they will make sure that there is sufficient money available for lifts, ramps, changing facilities, special toilets, furnishing and laboratory equipment, all of which will be needed for such children? It is one thing to say that we want integration in schools soon, and another to have the money to do the job.

Mr. Forth: The hon. Gentleman should talk to his hon. Friends on the Opposition Front Bench about their attitude to the provision of special schools as opposed to those in the mainstream. It is, and rightly so, for the local education authority—in this case, Manchester—to decide how far it believes that there should be provision in special schools and units or mainstream provision. That is its responsibility and I would look to, and expect, it to discharge that responsibility properly.

Dyslexia

Dr. Goodson-Wickes: To ask the Secretary of State for Education what studies he has made into the treatment of dyslexic children in examinations; and if he will make a statement.

Mr. Forth: The results of a three-year research project on special educational needs and the GCSE, commissioned by the School Examinations and Assessment Council and undertaken by the centre for assessment studies at Bristol university, is due to report to the council this summer. The research report is expected to address the position of candidates suffering from various disabilities, including dyslexia.

Dr. Goodson-Wickes: I understand that there are wide variations in the policies and practices of examination boards in the treatment of dyslexic children. Will the Minister give the House an assurance that their special needs will be recognised, especially in relation to concessions taking into account psychologists' reports so that that untapped talented group of people can achieve its full potential?

Mr. Forth: My hon. Friend asks an important question. At the moment, the examining groups try, wherever possible, to take the fullest possible account of children with disabilities and difficulties, in particular dyslexia. They try to strike that difficult balance between an examining and testing process that does justice to all pupils and one that takes proper account of those with particular special needs. I will certainly look again at the matter in order to satisfy myself that the examining groups are treating it properly, but I believe that, generally speaking, they have probably got the balance about right.

Oral Answers to Questions — PRIME MINISTER

Engagements

Mr. Pickthall: To ask the Prime Minister if he will list his official engagements for Tuesday 11 May.

The Prime Minister (Mr. John Major): This morning, I had meetings with ministerial colleagues and others. In addition to my duties in the House, I shall be having further meetings later today.

Mr. Pickthall: I thank the Prime Minister and the many Cabinet Ministers who campaigned in Lancashire in recent weeks and helped Labour vastly to increase its vote and achieve a majority on the local council. Was it in Lancashire that the Government heard about the challenging environment that they faced, the big hole that they were in and the bloody nose they were about to get? Did they listen to the people of Lancashire on value added tax, testing in schools, unemployment and the attacks on local democracy? Can the people of Britain expect the Government's supposed listening to the people to be translated into action to rebuild the country, instead of the present policies which are dismantling it?

The Prime Minister: The hon. Gentleman clearly deserves an A-level in smugness. Perhaps I may quote something to the hon. Gentleman from The Sunday Times that I have no doubt he will find of interest. The quote, which he may enjoy, reads as follows:
Conservative set-backs in Thursday's county council elections … were so severe that Labour would win the general election on the same voting breakdown.
That was The Sunday Times in 1985. Two years later we won the election with a majority of 100.

Mr. Conway: Is my right hon. Friend feeling cheerful, because he should? Is it not the case that we have every reason to be optimistic because, of all the countries that pulled out of the exchange rate mechanism last autumn, the United Kingdom is the only country to have pulled out of recession?

The Prime Minister: The principal reason Britain has come out of recession is that we have achieved low inflation; because we have got inflation down, we were able to cut 5 per cent. off interest rates—[Interruption.]

Madam Speaker: Order. Will hon. Members; on the Bench below the Gangway please desist until we get through Question Time? They can then go outside and have their own singsong.

The Prime Minister: I think that everyone was enjoying it, Madam Speaker. It was because we cut inflation that we were able to take 5 per cent. off interest rates before last September, and because we got inflation down we are now beginning to see a recovery in retail sales and exports since the spring. It is because of that that we shall see greater growth this year and next year than any other country in the European Community.

Mr. John Smith: Can the Prime Minister tell the House whether the Budget in November will be presented by the present Chancellor, the right hon. Member for Kingston upon Thames (Mr. Lamont)?

The Prime Minister: That is a hoary old chestnut of a question. I have not yet even begun to contemplate Cabinet changes. But I will say this: it is because my right hon. Friend the Chancellor has taken difficult decisions that we now have inflation at a 25-year low, interest rates at a 15-year low and prospects of the fastest growth in Europe this year and next year. That is an excellent record which people will recognise long after the right hon. and learned Gentleman's undignified sniping is forgotten.

Mr. Smith: Surely the Prime Minister heard the question quite clearly. It is a simple question: will the present Chancellor present the next Budget? Cannot the Prime Minister say either yes or no?

The Prime Minister: I explained very clearly to the right hon. and learned Gentleman. If I wanted advice on Cabinet making, I would not seek it from the right hon. and learned Gentleman, who last week had to sack his own economic spokesman for incompetence.

Mr. Smith: Madam Speaker—[interruption]

Madam Speaker: Order. The House must come to order.

Mr. Smith: The Prime Minister seems to be having some difficulty with a simple question—[Interruption.]

Madam Speaker: Order. The House must come to order and not use up time in this way.

Mr. Smith: May I give the Prime Minister a third shot at it? Will the present Chancellor present the Budget? If the Prime Minister cannot say yes, why cannot he say no?

The Prime Minister: Why does not the right hon. and learned Gentleman just admit that he has got a bloody nose? It is a good deal more dignified.

Mr. Marlow: My right hon. Friend—as a genuine, listening Prime Minister—will be aware of the alienation expressed in the constituencies last week. He will also be aware of the severe mauling given to the Maastricht treaty by the democratic process. Is he not greatly concerned about the massive alienation that would result if the ratification of this new constitution now depended on the Danes, the Whips and the courts alone?

The Prime Minister: If, as my hon. Friend intimates, the election was really about the Maastricht treaty, it is rather surprising how well some other political parties did.

Mr. Ashdown: After Srebrenica, just as I predicted, there has been Zepa. Does the Prime Minister still insist on doing nothing more to save the tens of thousands of innocents in Gorazde from a similar tragic fate?

The Prime Minister: The right hon. Gentleman is being deeply unfair to the efforts by both this country and a large number of other countries which are working together. The right hon. Gentleman is aware of the difficulties and also of the intense dangers of following some of the actions that he has advocated in the past. He knows what action we are proposing to take; that remains the position and we continue to discuss that and other options with our allies.

Mr Streeter: Is my right hon. Friend aware that on a recent visit to estate agents in Plympton in my constituency, I found that estate agents could talk of nothing else but a real and significant upturn in the housing market, with house sales increasing and house prices improving week by week? Does my right hon. Friend agree that that reflects a steady return to confidence in this country and represents good news for Plymouth, good news for the country and bad news for the Opposition?

The Prime Minister: I am sure that that is right in every aspect. I have not myself visited estate agents, as I have no intention of moving.

Mr. Milburn: To ask the Prime Minister if he will list his official engagements for Tuesday 11 May.

The Prime Minister: I refer the hon. Member to the answer I gave some moments ago.

Mr. Milburn: Does the Prime Minister share his Chancellor's lack of regret about the damage done to the country by his Government? Is not it time that he learned to apologise and to listen to the millions of people who have become the victims of his policies? Has he got time today to tell them what changes in direction he has planned following last week's overwhelming public rejection not only of him and his colleagues but of his Government's policies?

The Prime Minister: I have said before, and from the Dispatch Box, that I understand the difficulties that people have faced as a result of the recession. I have said that clearly. I have also made it clear that I appreciate that it has lasted longer than people anticipated, but it was necessary to bring inflation down, or inflation would have gone on wreaking ever-greater damage for an even longer period. We needed to bring it down; we have brought it down. That is the only secure basis for lasting growth in the future. The fact is that the Labour party would never have had the guts to take the decisions that were necessary.

Economy

Mr. Michael Brown: To ask the Prime Minister if he will make a statement on the state of the economy.

The Prime Minister: It is getting better every day—exports up, manufacturing output up, retail sales up, business confidence up, new housing starts up and gross domestic product up.

Mr. Brown: Is my right hon. Friend aware that that reply is confirmed in Brigg and Cleethorpes, where industrial recovery has resulted in unemployment falling to below the national average where once it was twice the national average? Will he acknowledge the Government support that has resulted in tremendous United States investment through companies such as Kimberly-Clark Ltd. and Paramount Packaging, where many jobs have been created in the last few months? May I advise my right hon. Friend that in Cleethorpes last week Allied Colloids announced that 90 more new jobs would be created?

The Prime Minister: I am delighted to welcome investments such as those which represent good news for Humberside. They represent the confidence of inward investors and of British companies in the region. I know how hard my hon. Friend works for his constituents and how much he will welcome those developments.

Ms Estelle Morris: What would the Prime Minister say to the millions of pensioners living just above income support level who thought that his pledge to start listening would mean that the proposal to charge VAT on fuel would be removed'?

The Prime Minister: Everyone, including the Opposition Front Bench, as I understand it, agrees that the budget deficit is too high and that we need to bring it down. We have had the courage to produce our proposals, of which VAT is a part, to bring it down. I am surprised that the hon. Lady should raise that after the nonsense talked by the right hon. and learned Member for Monklands, East (Mr. Smith) about VAT last week, when it was clear from one of his economic spokesmen that the Opposition, too, would have increased VAT on a range of items.

Engagements

Sir Fergus Montgomery: To ask the Prime Minister if he will list his official engagements for Tuesday 11 May.

The Prime Minister: I refer my hon. Friend to the answer I gave some moments ago.

Sir Fergus Montgomery: Has my right hon. Friend seen the report today that housing starts are up 22 per cent. compared with the last quarter? Should not that news bring joy even to the hearts of the dismal Johnnies on the Opposition Benches? Is not that a sign of a return to confidence?

The Prime Minister: I am afraid that the Opposition are unhappy at good news. They realise that good news today for us is bad news tomorrow for them. Clearly, it shows growing confidence by the building industry in the market for new houses. That is very welcome in view of the difficulties that the construction industry has had. With the measures that the Chancellor took in the autumn statement, the measures that he took in the budget and the reduction in interest rates, there is clearly a much better prospect for the housing market.

Mr. Connarty: To ask the Prime Minister if he will list his official engagements for Tuesday 11 May.

The Prime Minister: I refer the hon. Member to the answer I gave some moments ago.

Mr. Connarty: Does not the Prime Minister accept that the bloody nose on Thursday was given to him personally as much as to his Government? Has it improved his listening skills area on the issue of testing children? We are to have a statement later today, but the nation is looking to the Prime Minister to see where he stands. As a Scot, I remember that we went through a period of attrition when the Government tried to force testing on to our country. Thankfully, it is now back in the hands of parents and teachers who care for children, so that test items can be used whenever they want and not compulsorily. Will the Prime Minister tell the House where he stands on the testing of children and the interference of the state in the care of parents and teachers?

The Prime Minister: The answer to the first part of that supplementary question is that, of course, I accept my share of responsibility for the election results last week, in precisely the same way as the right hon. and learned Member for Monklands, East (Mr. Smith) will accept his share of responsibility for losing the last election. As for education and testing, I will tell the hon. Gentleman precisely where I stand: I stand four square with my right hon. Friend the Secretary of State.

Mr. Thomason: To ask the Prime Minister if he will list his official engagements for Tuesday 1I May.

The Prime Minister: I refer my hon. Friend to the answer I gave some moments ago.

Mr. Thomason: Does my right hon. Friend agree that it is never popular to increase taxes but it is necessary to balance the books? Does he further agree that the responsibility of the Government contrasts sharply with that of Labour Members, who demand more spending but do not tell us how they would pay for it?

The Prime Minister: I agree with my hon. Friend and, as he indicated, measures are in place to bring down the size of the borrowing requirement. That has required some tough decisions, but, having concluded that that is necessary, the Government have taken those decisions knowing that they cannot be ducked. As my hon. Friend pointed out, the Labour party is in a fundamentally

dishonest position—[Interruption.] Opposition Members are committed to spending money, but they will not say where the money is coming from. That is very good for an Opposition but not for a Government, which is why we remain on these Benches and they remain on the Opposition Benches.

Testing (Schools)

The Secretary of State for Education (Mr. John Patten): With permission, Madam Speaker, I propose to make a statement about future arrangements for national curriculum testing.
My right hon. Friend the Prime Minister and I have already confirmed the Government's commitment to this summer's tests for seven and 14-year-olds. There is abundant evidence of the importance of testing the progress of our children. Our main competitor countries do so as a matter of course. So should we. It would be a betrayal of a future generation of pupils—[interruption]

Madam Speaker: Order. The House must come to order.

Mr. Patten: Our main competitor countries do so as a matter of course. So should we. It would be a betrayal of a future generation of pupils to postpone what are acknowledged on all sides to be much needed educational reforms. It would be to set aside the tremendous efforts made by the great majority of hard-working teachers to implement the national curriculum since 1989.
Tests for seven-year-olds are in their third year. We know that they work. Tests in 1991 and 1992 have improved standards of teaching and learning. Last year's pilot tests for 14-year-olds were well received. Attendance by pupils actually went up on test days. Her Majesty's chief inspector of schools said only yesterday that the evidence provided by a good testing system was essential to assess the progress of our schools.
Children have been working towards the tests for several years. Abandoning the tests would leave conscientious teachers, concerned parents and the wider community in the dark about our schools, depriving them of vital information about the attainments of individual pupils and denying Sir Ron Dearing the information about the quality of the tests for which he himself has asked.
I come to the testing arrangements for 1994. Sir Ron Dearing has been given the widest possible remit. His task is to advise on how the curriculum and assessment framework in the round can be simplified and streamlined in response to the concerns of many teachers.
I have discussed with Sir Ron the implications for 1994. He has advised me that the tests next year should focus on the basics—exactly why I asked him to set up the review in the first instance. I agree with that advice. The Government have therefore decided on the following for 1994. First, mandatory tests in 1994 for seven and 14-year-olds should concentrate on the core subjects of English, mathematics and science, and on Welsh as a first language in Wales. We shall decide later whether to add technology at the age of 14, in the light of this summer's tests.
Secondly, the testing arrangements in these subjects will be streamlined, with some substantial changes to coverage and style. I have asked Sir Ron Dearing to advise me by July on how this can best be done, including the balance between the tests themselves and teachers' own assessments.
Thirdly, and very importantly, Sir Ron will, at my request, carefully consider the merits of external marking by external examiners of the tests of 11 and 14-year-olds.
Fourthly, the current obligation on teachers of seven-year-olds to make assessments of class room work in technology, history and geography will be lifted in 1994 and will not be introduced in music, art and physical education, allowing those teachers to concentrate on the basics.
Fifthly, next year's tests for 11-year-olds in English, mathematics and science will take the form of a national pilot, leading to mandatory tests in 1995.
Sixthly, the introduction of mandatory tests for 14-year-olds in history and geography which had been planned for 1994 will be postponed, pending Sir Ron Dearing's review.
Seventhly, to ensure that Sir Ron Dearing's recommendations about changes to the curriculum can be rapidly implemented, which is what many of my right hon. and hon. Friends want, the Government propose to suspend for a period the consultation procedures specified in sections 20 and 21 of the Education Reform Act 1988. We shall move an appropriate amendment to the Education Bill, now in another place.
This will preserve, during the interim, the duty on me and on the Secretary of State for Wales to consult about changes, but it will be designed to enable us to proceed to make those changes after a single stage of consultation in cases such as this in which the need for change has been widely recognised and the changes themselves are the product of extensive prior debate, such as that which has been going on in the country for a number of months.
I say two things in conclusion—[HON. MEMBERS: "I resign".] That is only to be expected from the Opposition, but I am anxious to complete my statement, Madam Speaker.
These decisions will significantly reduce the work load on teachers in 1994. It is in the interests of properly taught children, informed parents, employers and the nation that the testing arrangements which I have described today should go ahead without interruption. If they do not, we will have an education system without adequate rigour. and we shall have conceded a decade's advantage to our international competitors.

Mrs. Ann Taylor: Does the Secretary of State realise that his statement illustrates the utter confusion and chaos in Government circles on this year's tests? Only yesterday, the Secretary of State was saying that there would be no further statement. No. 10 said that there would be; then it said that there would not he—little knowing, apparently, that the Lord Privy Seal and the Prime Minister had decided that the crisis of confidence in the Secretary of State was so great that he would be forced to make this statement today. Clearly, however, the reason for the statement remains puzzling, as the Secretary of State has said that there are to be no changes in the testing arrangements for this year.
The Secretary of State's statement that the tests must go ahead this year proves that he has learnt nothing and that he is still not willing to listen. Does he realise that no previous holder of his office so clearly united the independent schools with the NUT, or the Professional Association of Teachers with the National Association of Schoolmasters/Union of Women Teachers, all of which. with parents and governors of all political persuasions, are totally opposed to the Government's imposed tests?
Will the Secretary of State acknowledge that no one is opposed to the testing and assessment of children but that


the tests that he wants to impose are high on administration and low on educational value, and that no one has confidence in them?
If so many changes are to be made next year and in subsequent years, why does the Secretary of State persist in trying to make guinea pigs of our children this year? The logic of his own position must be to withdraw the compulsion to have tests this year. Why cannot he make the tests voluntary? Does he consider himself to be tied by his own legislation?
With regard to testing arrangements for future years, does not the Secretary of State realise that he cannot get the arrangements right if he does not admit that he has been wrong so far and if he does not understand his own mistakes? Will he now admit that he has been wrong? Will he admit his mistakes and consult widely, and not in haste, about the arrangements for the future?
We welcome the 11 specific points on which the Secretary of State has climbed down in respect of testing arrangements for future years. Thus, it is all the more incredible that he is forcing tests on children this year.
Looking to the future, I urge the right hon. Gentleman to understand that appointments to and the terms of reference and time scale of the Schools Curriculum and Assessment Authority are critical, that the membership of SCAA must not be determined by the Secretary of State alone, that a majority of its members must be people responsible for educating children, and that the review must be genuinely independent of the Government.
To that end, will the Secretary of State agree that the Select Committee on Education should ratify membership of the review body? Will he acknowledge that the review must not be a hasty exercise? Will he accept that, unless parents, teachers and governors have full confidence in the independence and in the appropriateness of the timing of the review, we shall not be provided with a long-term solution to this problem?
The real issue is whether the Secretary of State has demonstrated a capacity to listen and to understand the problems that he has created. He still fails that test. His obstinate and arrogant refusal to change this year's tests is incredible. He does not enjoy the confidence of parents, teachers or governors—even of his own advisers. He should resign.

Mr. Patten: I am very confused by the hon. Lady's attitude and by that of her hon. Friends, such as the hon. Member for Bridgend (Mr. Griffiths), who is one of 100 lead signatories to early-day motion 1988, which says that there should be no national curriculum tests whatsoever for seven-year-olds. It is very difficult to understand the Labour party's attitude.
The reforms that have been introduced since 1988 have at each stage been modified in response to views from teachers and other professionals and educationists. That is exactly what happened with the 1991 tests for seven-year-olds. They were translated into new and improved tests for seven-year-olds for 1992. They are now being taken in many schools up and down the country, and I believe that they will show a critical improvement in standards.
Each reform should build on the preceding stage of the reform. It is critical that the tests should proceed this summer, in the interests of the children themselves. People in this country will be amazed when they see the published test questions and will wonder what on earth the fuss was

about. Sir Ron Dearing, in response to my remit letter to him of several weeks ago, said—he repeated it yesterday—that he needed the evidence of this year's tests in order to inform his review.
Sometimes the Government are accused of not listening. I have been to a good number of schools up and down the land and I have talked to teachers in those schools and in my Department. They have stated their views about the national curriculum and assessment. I did listen; that is why, several weeks ago, I set up the review under Sir Ron Dearing. That was a classic case of responding, quite correctly, to professional concerns. But in the meantime, if the reforms are to succeed, they must proceed.

Mr. James Pawsey: I hope that my right hon. Friend will reject the ill-considered advice that he has just received from the hon. Member for Dewsbury (Mrs. Taylor). Does he accept that the overwhelming majority of hon. Members and certainly parents will widely welcome his statement, which clearly shows that he has listened to parents and teachers and has simplified the national curriculum and testing? I hope that my right hon. Friend's announcement will be matched by an equivalent one from the trade unions withdrawing the boycott.

Mr. Patten: I welcome what my hon. Friend has said. The response of professional teachers will be interesting. I hope that they will respond to my statement this afternoon. It will substantially reduce teachers' work load, about which they have complained, and possibly introduce external examiners for tests at 11 and 14. I hope that teachers will welcome the reforms. No teacher should ever think that the national curriculum or testing is wrong or will not produce results in the interests of our children.

Mr. Don Foster: Does the Secretary of State accept that at least two of the things that he has said today will be widely accepted in the House—first, his recognition that the current testing arrangements impose an excessive work load on teachers in our schools and, secondly, his clear admission that the current testing arrangements are wrong and desperately need to be changed?
Does he further accept that many parents, teachers and governors will be bitterly disappointed by his statement today because, although he is offering changes in the future, he offers no changes at the present time, so the problems in our schools will continue? There is no end to the strife in our schools—strife of the Government's making. Does the Secretary of State really believe that by offering jam tomorrow he can get himself out of a pickle today?

Mr. Patten: The tests taken by any child at any stage of his or her career, be it GCSE or A-level, will always be subject to lively debate. People will often say that this or that question was not put in the right way or was flawed. It is certainly not my belief that the tests for 14-year-olds this summer are fundamentally flawed. It is a matter of professional debate.
Some people think that there are problems. Others, including professional advisers, such as the noble Lord Griffiths, who was chairman of the School Examinations and Assessment Council, do not. Lord Griffiths wrote to my on 18 April delivering the tests and saying that it was



the view of his council that the tests had been well prepared. After all, they had been piloted during the previous three years.
Why should the tests at 14 go ahead this summer? I shall tell the hon. Member for Bath (Mr. Foster) why. Children have been working for the tests for the past two to three years. Children have a right and an expectation that they will take the tests. The hon. Gentleman should listen to Sir Ron Dearing, the widely respected independent chairman of the review I have set up, who has asked that the tests should go ahead this summer.

Several hon. Members: rose—

Madam Speaker: Order. I would be obliged if we could have brisk questions and brisk answers so that we can get through questions from a number of hon. Members.

Mr. David Madel: Will my right hon. Friend ask Sir Ron Dearing to ensure that arrangements are made whereby heads of department in schools, especially English and technology departments, can put their views directly to him so that, by 1994, we shall have a better system of testing in schools?

Mr. Patten: I am pleased to tell my hon. Friend that that has already happened. Sir Ron Dearing is consulting not only head teachers in a series of regional meetings, but a range of heads of department in exactly the way that my hon. Friend wishes.

Mr. Bryan Davies: Will the Secretary of State accept that his retreat into flexibility for next year is fatally compromised by his determination to press ahead this year? Is it possible in a free society—a society that is different from that of Napoleonic France or, dare I say it, of Nazi Germany—for professional educators to be forced to do something to which they are opposed because of educational principle? Does the Secretary of State accept that he cannot get the reforms through for this year unless he is prepared to put General Patten's tanks on every playground in the country?

Mr. Patten: I believe that it would be so sad if there were a boycott this summer of, for example, the tests for seven-year-olds which have been largely completed. That is why I profoundly hope that the NUT ballot, of which we shall have the result on Thursday, is not in favour of the boycotting of all tests at seven, 11 and 14. That would be a tragedy for our children.

Mrs. Angela Browning: Having met head teachers and heads of departments in my constituency, I know that they do not question at all the need to test. My right hon. Friend will be aware that it is the practical application that has gone wrong. If this were a business, the people charged with responsibility for the tests would have been sacked. I hope that my right hon. Friend will consider that point, because those people have presumably been drawing good salaries while putting the tests together.

Mr. Patten: I am Secretary of State for Education and I accept all responsibility for education in England. I know that my hon. Friend brought a deputation of heads to the Department to see my right hon. and noble Friend Baroness Blatch. I welcome the fact that they accept the

principle of testing. I urge my hon. Friend to urge them to recognise that, if we stop the process of reform, if we stop the national curriculum being implemented, if we stop the testing regime, if we pull up the plant and examine it for two or three years, we shall set back the whole process for a decade.

Mr. Dennis Skinner: Is the Secretary of State aware that his fall from grace has been coming for a long time? Nobody has exuded more arrogance and contempt for his colleagues than he has. He has strutted round the Dispatch Box like a puffed-up peacock on heat. Today, he has come in like a bedraggled battery hen that has laid its last egg. His intellectual elitism has overwhelmed his common sense, and the people in the country know it.

Mr. Patten: That was not so much a question as a statement, from which, as the hon. Gentleman recognises, I readily dissent.

Mr. John Watts: Does my right hon. Friend agree that the target of the neanderthal trade unions that have orchestrated opposition to the tests is not the flaws in the tests, to which my hon. Friend the Member for Tiverton (Mrs. Browning) referred, but the national curriculum itself? Would not the biggest possible betrayal of our children be to allow those trade unions to feel that they were once more in charge of education? They would preside over a lowering of standards, from which the country suffered for so many decades.

Mr. Patten: I am not sure why the national curriculum and the question whether we should have one or not has suddenly been brought back as a matter for debate. It is critical that we—like the Germans, the Japanese and the French—have a well established national curriculum. We should have had one decades ago, and it is critical not to be driven off course now.

Mr. Frank Cook: May I remind the Secretary of State that we are talking about the future of our nation's young people, and inform him that, in a previous capacity, I was responsible for the formulation, standardisation and application of various forms of educational testing, both for attainment and of a diagnostic nature. One of the things that we learnt at the time was that the over-application of such tests devalued them—they interefered with the education programme and were counter-productive.
Just how many of the Secretary of State's advisers have that kind of experience and take into account that kind of result or lack of result? I simply want the Secretary of State to justify his position logically, rather than coming out with the party political rhetoric to which he seems so fond of resorting. Where is the rationale, the logic? As yet, it is not in evidence. Ask the profession—those who are responsible.

Mr. Patten: Given the chance, I will.
On both the National Curriculum Council, which is concerned with curricular activities, and the School Examinations and Assessment Council, which is concerned with examination and assessment, there are six lecturers and six teachers. Each of the subject groups that has helped to set up and design the tests for


seven-year-olds and 14-year-olds has included a substantial number of teachers—I believe, an overwhelming majority of teachers. That is the straight answer to the hon. Gentleman's question.

Sir Malcolm Thornton: I can assure my right hon. Friend that the lively debate to which he referred will continue—certainly as regards this year's tests. He will know from the views that I have expressed of my disappointment on that score. I have listened carefully to his statement and would say firmly to him that the package of measures that has been announced goes a very substantial way towards meeting the criticisms that have legitimately been made in connection with the way in which the tests should be conducted in future and as regards the content of the national curriculum.
In those circumstances, does not my right hon. Friend agree that there can be no possible justification for any attempt to disrupt and boycott in our schools this year? Does he agree that such action will not only serve to damage the education of our children—which is the most important thing—but will cause the Ron Dearing review, upon which so much depends, to get off to such a bad start as to make Ron Dearing's task almost impossible?

Mr. Patten: I entirely agree with my hon. Friend. I warmly welcome what he has said. Like him, I believe that industrial action and boycotting have no place in the classroom. I appeal to teachers to listen to Sir Ron Dearing and to his request for their co-operation. That is something that the teaching world owes the chairman of the independent review.

Mr. Gerry Steinberg: Contrary to what the Chairman of the Select Committee on Education says, the Secretary of State has almost admitted—in the most amazing statement that I have ever heard—that the tests are flawed, because he has agreed that next year they will not take place. If the tests are to continue, the education of children in our schools will be affected. Bearing in mind the fact that the vast majority of teachers, regardless of their union, are opposed to the tests, why is the right hon. Gentleman forcing ahead with them now? And what will he do when teachers boycott the tests, as they will?

Mr. Patten: Each test each year is a preparation for a test the next year, as well as being a test in itself. There has been an occasion in the history of examinations—of A-levels and 0-levels and now GCSEs—when each year did not involve preparation for the next. That is why it is critical for the tests to proceed, and that is why Sir Ron Dearing has asked for exactly that to happen.

Mr. Harry Greenway: Does my right hon. Friend agree that nothing is more damaging to children than vacillation and uncertainty in their education, as in all areas of their lives, and therfore it is important to be consistent? Will he further agree that equality of opportunity is absolutely fundamental to the Government's aims for all children in education and everywhere else in their lives?
Therefore, would it not be wrong for some children to have tests and others not to have tests by some form of boycott? Is my right hon. Friend considering compiling a list of volunteers who might assist in the testing process when teachers or others involved are prepared to operate a boycott in a ruthless manner?

Mr. Patten: The whole purpose of the national curriculum and the associated testing regime is to deliver a minimum entitlement of education to all our children wherever they are and from whatever background they come. That is why it is so wrong, as my hon. Friend the Member for Crosby (Sir M. Thornton) said, that there should be any boycotting in the summer. Of course, we know that the tests will proceed in a number of areas—for example, the tests will be taken in London boroughs such as Wandsworth. When the results are published and when people see what the test questions are like, they will wonder what the fuss was about in the first place.

Mr. Edward O'Hara: Will the Secretary of State, as a member of a Government who know the cost of everything but the value of very little, now step back and do a simple cost-benefit analysis? It is clear to all that the testing programme is in such disarray that any diagnostic value that it might have had for Sir Ron Dearing will be absolutely worthless.
Having marshalled more opposition throughout the world of education than has ever been witnessed before, will the right hon. Gentleman consider whether there might be an enormous cost benefit to him in withdrawing his insistence on pressing ahead with the tests this year and winning back some of the good will and morale throughout the world of education without which anything that he wishes to deliver for the children of this country cannot be delivered at all?

Mr. Patten: I am sure that the 430,000 hard-working teachers in England for whom I am responsible—I am not responsible for Scotland—recognise that their efforts are warmly welcomed. Those teachers have already put in an enormous investment of time to prepare children for tests at seven and 14. It would be a tragedy if that investment were wasted.

Mr. Iain Duncan Smith: Did my right hon. Friend notice the opinion poll the other day that showed that four out of five parents want the tests to go ahead? Does he agree that that reflects the severe concern that children have been preparing for the tests for the past three years and the important point—which the Labour party has clearly missed—that the national curriculum can be improved only if the testing goes ahead? Teachers, as professionals, have a duty to ensure that they do the best they can with the tests, so that Sir Ron Dearing and others can ensure that the problems are rectified.

Mr. Patten: No one in England and Wales will ever know whether the national curriculum is workirig unless there is a testing regime and the results are published. That is the only way in which we will know whether education in this country is performing at the same level as that of our international competitors such as Germany and France.

Mr. John McFall: May I be helpful to the Secretary of State by saying that the Government got a bloody nose in Scotland a few years ago on the issue of testing not from teachers or teachers' unions but from parents? Four out of five parents kept their children away from tests.
That parental revolt made the Government see late in the day that the best way forward was to allow teacher discretion on testing in the classroom and provide a partnership among teachers, parents and education so that


the education of young people could be fruitful and go forward. Will the Secretary of State learn that lesson which the Government learned so dearly at their expense in Scotland?

Mr. Patten: As the hon. Gentleman knows, the system in Scotland is different; there is no Education Reform Act, and no national curriculum is laid down by statute. The education north and south of the border is completely different.

Mr. Patrick Thompson: My right hon. Friend's restatement of the principle of testing and of curriculum form are welcome in the House and in the schools. Will my right hon. Friend confirm again that it is his longer-term intention to remove a great deal of the overweening bureaucracy that has crept into the tests and to concentrate on basics, which I welcome? If he can confirm that, his statement will be even more welcome in the House.

Mr. Patten: That is so. I am sure that that is what will come from the Dearing review. I know that my hon. Friend speaks with experience—if my memory serves me aright, 23 years as a classroom teacher—so I take his views very seriously.

Mr. Cynog Dafis: Has the Secretary of State considered the cost of the astonishing proposal that the tests at 11 and 14 years of age should be externally marked? Does not that constitute an admission that for seven years we have been getting the marking of external examinations done for nothing by teachers on the cheap? Would it not be better to use that money to provide better resources in schools, particularly human resources, to enhance the quality of teaching, which is the only thing that produces better standards in education?

Mr. Patten: If the hon. Gentleman casts his mind back to a survey in England—not in Wales—in March 1992, we asked 93 education authorities whether they tested regularly up to the age of 11. Only 41 said that they did so. If teachers are saying that they have been testing all along, national testing is simply a substitute for the testing that should have been taking place throughout that time in primary and secondary schools.

Dame Elaine Kellett-Bowman: Does my right hon. Friend recall that I brought a delegation of head and assistant head teachers to his Department some months ago and they were delighted with the changes that our noble Friend Baroness Blatch had already introduced? I have been ringing around my constituency trying to find our how many teachers were carrying out the tests. The majority are doing so—apart from one highly politically motivated gentleman. Children in the majority of schools have taken the tests and they are being marked. Teachers said, however, that they would like the tests to be simplified next year. They will therefore be delighted with my right hon. Friend's statement.

Mr. Patten: I am grateful for that, and I am sure that in most primary schools the tests for seven-year-olds will be taken, in Lancaster as elsewhere.

Mr. Win Griffiths: The Secretary of State, in his statement and his information to hon. Members at Question Time, has shown that he has failed the listening test; secondly, that he has failed the speech test; and in his reference to the early-day motion which I tabled last night with 104 other people, he has failed the reading and understanding test. I did not say that the tests should be abandoned. That was the opinion of parents who were polled by The Independent and NOP. My demand was a rather modest one—for this year's tests to be made voluntary.
I cannot understand why the Secretary of State made a statement about next year, implying that this year's tests must be badly flawed and damaging for children and teachers, and yet was unable to make this year's tests voluntary. In the light of the arrangements that he is making for next year, which we admit show a considerable improvement in his attitude, does he intend not to bring any pressure on local education authorities, head teachers and governors in schools where teachers decide not to carry out the tests this year?

Mr. Patten: I have only two things to say to the hon. Gentleman. First, the Government have listened to the views of teachers and others, which is why, several weeks ago, I set up the Dearing review. Secondly, I have carefully considered early-day motion 1988 standing in the name of the hon. Gentleman and some of his hon. Friends:
that children should be assessed but not given National Curriculum tests at seven".
That shows what the Labour party is concerned about.

Points of Order

Mr. Nicholas Brown: On a point of order, Madam Speaker. Can it be in order for the Ministry of Defence to make a major procurement announcement by letter and press release without informing the House of Commons first? The Minister of State for Defence Procurement has announced his decision on the landing platform helicopter carrier. He has announced that the order has gone to Kvaerner and Barrow in Furness, which has condemned Swan Hunter on Tyneside to closure with the loss of some 6,000 jobs. That is of enormous importance to the people of Tyneside and, I respectfully put it to you, Madam Speaker, it should be raised on the Floor of the House.

Mr. Stephen Byers: Further to that point of order, Madam Speaker. Shipbuilding has been carried out on the Tyne for centuries, yet we have had an announcement this afternoon that could deny shipbuilding on Tyneside a future. Is it right that a statement of such overwhelming importance to my constituents and thousands of workers on Tyneside can be slipped out without the House having the opportunity to question the Minister responsible? Is that an appropriate way for the Government to conduct their business?

Madam Speaker: I understand that the text of an answer to a question on this issue is already available to hon. Members. However, perhaps the hon. Gentleman will wish to make a submission to me in the usual way in time for tomorrow.

Water (Domestic Disconnections)

Mrs. Helen Jackson: I beg to move,
That leave be given to bring in a Bill to amend the Water Industry Act 1991 so as to remove the powers of water undertakers to disconnect residential premises in cases of non-payment of charges; to constrain the installation of pre-payment devices for the supply of water; and for connected purposes.
This is a simple Bill but one which affects the lives of every one of us. Human life on this planet is made possible by the abundance of oxygen in the air and water in the atmosphere. We share that water with all other plant and animal life. It is part of a natural cycle. From our first cup of tea in the morning it passes through us and washes over us out of the tap and down the plug hole. It rains on the fields and evaporates back into the atmosphere and the clouds.
All major legal systems of ancient and modern times have adopted the principle that there can be no ownership of running water; it has to be shared as a genuinely common asset It therefore cannot be right that a water company, contracted only to clean and deliver this asset, can say, "This bit of water is ours. You have not paid for it, so we shall not let you have any."
Thankfully, in Britain many key services are still available to all, withdrawal of which is not used as a threat for non-payment. We do not say that people cannot call an ambulance or the police, send their children to school or even have their dustbins emptied if they are late paying their income tax or rates. Water should take its place alongside those core services, which are basic to our quality of life. This Bill does just that.
Action needs to be taken urgently, because the scale of water disconnections is startling. From a figure of 7,600 in 1990–91, it has leapt to 21,300 last year. Unexpectedly, Ofwat has chosen today to release this year's figures. They show a welcome reduction of 12 per cent., to 18,600. But that still means that, for every working day last year, 70 homes in this country were, in effect, rendered unfit for human habitation, according to the Housing Act 1985.
The Act is absolutely clear: section 604 says that a dwelling house is fit for habitation unless it fails to meet one or more requirements, one of which is that it has an adequate piped supply of wholesome water. Each disconnection leaves a premises unsafe as a place to work according to the Factories Act 1961 and the Offices, Shops and Railway Premises Act 1963. For 2·5 million people, however, their main place of paid work is the home, not to mention the millions more who toil away every day at the kitchen sink.
Every disconnection also renders a house an unfit place in which to care for children or for old people, according to the care regulations set out in the Children Act 1989 and the Registered Homes Act 1984. We should also remember that the most common location of accidents that require hospital treatment is the home.
I am not suggesting that the process of delivery of adequate supplies of clean, pure water should not be paid for. It should be regarded as a valuable resource to be carefully used.
My hon. Friend the Member for Birkenhead (Mr. Field) asked a question about disconnections on 8 March, and the Government made a distinction between "can't


payers" and "won't payers". They said that they offer safeguards against disconnection for those who cannot pay, and presented the vision of victims of water disconnection being obstinate, middle-class citizens with a couple of cars in the drive and sprinklers on the lawn, who wilfully refused to pay the water companies their reasonable dues. It is not like that.
Evidence around the country reveals that the victims of disconnection are people with other debts as well, who are often on income support. Yes, they pay up when faced with the nightmare of being without water, but they do so simply by getting further into debt with someone else.
There is no evidence that the threat of disconnection is what persuades people to pay their water rates. The number of unpaid bills was lower when disconnection was not the practice and bills were paid, along with the rates, on a property value basis. In Scotland, where it is illegal to disconnect water supplies, the courts are used as the final solution. That system works well.
The Government, through the regulator Ofwat, should give fresh consideration to introducing a simplified charging system that makes use of council tax banding. They should work with the Benefits Agency and the local authorities to produce easier payment schemes. That would be a more effective means of reducing non-payment.
It is for that reason that the Bill has received widespread help and backing from national consumer associations, the citizens advice bureaux, local authorities, the Association of Metropolitan Authorities, housing organisations including Shelter, the Institute of Housing, the House-Builders Federation and the National Federation of Housing Associations, architects, public health officers and the Institute of Environmental Health Officers.
Those health officers have offered their backing out of a real concern for public health. I welcome the fact that, today, the chief medical officer has recognised that concern and has set up a small working group to consider the potential problems that water disconnections might cause.
I should like to quote from the environmental health officer of Canterbury city council—it is not a Labour authority, but we did very well, thank you, in the county elections on Thursday—who has written a report recommending a statutory ban on the disconnection of domestic dwellings. He states:
The public health movement began in the last century and its major thrust at that time was to control epidemics of infectious disease … Our homes are all designed to make hygiene a matter of normal routine; we all expect an inside WC, a bath, wash hand basin … As soon as the water supply is cut off, hygiene becomes virtually impossible and the resulting 'insanitary' conditions can easily and quickly facilitate the growth of bacteria which cause disease".
We cannot take our public health for granted. At a time when the increase in notifications of water-borne diseases, such as dysentery, is causing great concern, Parliament could do one small thing to help by approving the Bill.
It is part of the Government's role to set and oversee standards relating to the quality of our lives. They must take the responsibility, along with Ofwat, to act urgently to reduce the number of water disconnections to domestic dwellings. But I say that even one disconnection is one too many and cannot be condoned. The practice must cease altogether.
I commend the Bill to the House.

Question put and agreed to.

Bill ordered to be brought in by Mrs. Helen Jackson, Mr. Richard Burden, Mrs. Elizabeth Peacock, Ms Jean Corston, Mr. Chris Smith, Mr. John McFall, Mrs. Anne Campbell, Mr. Paul Tyler, Mr. Bill Michie, Mr. Brian Wilson, Mr. Rhodri Morgan and Mr. Malcolm Chisholm.

WATER (DOMESTIC DISCONNECTIONS)

Mrs. Helen Jackson accordingly presented a Bill to amend the Water Industry Act 1991 so as to remove the powers of water undertakers to disconnect residential premises in cases of non-payment of charges; to constrain the installation of pre-payment devices for the supply of water; and for connected purposes: And the same was read the First time; and ordered to be read a Second time upon Friday 14 May, and to be printed. [Bill 194.]

Orders of the Day — Finance (No. 2) Bill

Considered in Committee [Progress, 22 April]

[MR. GEOFFREY LOFTHOUSE in the Chair]

Clause 183

ABOLITION OF PRT FOR OIL FIELDS WITH DEVELOPMENT CONSENTS ON OR AFTER 16TH MARCH 1993

Mr. Alistair Darling: I beg to move amendment No. 21, page 137, line 32, at end insert—
'(aa) for which notice has been served that this is a non taxable field under Schedule 1 to the Principal Act:
and'.

The First Deputy Chairman of Ways and Means (Mr. Geoffrey Lofthouse): With this, it will be convenient also to discuss the following amendments:

No. 22, page 137, line 32, at end insert—
'(aaa) for which no determination under Schedule 1 to the Principal Act has been made either in whole or in part as a non taxable field and'.

No. 45, page 137, line 34, leave out '16th March 1993' and insert
'such day as the Secretary of State may appoint by order, which shall be made by Statutory Instrument and shall be laid before and approved by the House of Commons'.

No. 24, page 137, line 35, leave out subsection (b).

No. 40, page 137, line 36, at end insert
'or—
(c) one in which in whole or in part, a commitment to a programme of Exploration and Appraisal drilling was undertaken under the terms of a licence agreement and approved by the Secretary or State before that date, where the field participants elect to so classify the oil field and to accept a diminishing percentage of allowable expenditure on exploration and appraisal to be offset against PRT and a ceiling on the amount allowed for each company as allowable expenditure for PRT relief; the percentage, the timescale and the ceiling to be determined by the Secretary of State and approved by the affirmative resolution of each House of Parliament.'.

No. 25, page 137, line 39, leave out subsection (2).

No. 42, page 137, line 41, leave out '16th March 1993'
and insert
'the day appointed by the Secretary of State in subsection (1)(a) above'.

No. 43, page 138, line 1, leave out '16th March 1993' and insert
'the day appointed by the Secretary of State in subsection (1)(a) above'.

No. 28, page 138, line 11, leave out subsection (b).

No. 35, line 138, line 29, leave out subsection (e).

No. 29, page 138, line 35, leave out subsection (6).

No. 44, page 138, line 36, leave out '16th March 1993' and insert
'the day appointed by the Secretary of State in subsection (1)(a) above'.

No. 31, page 138, line 42, leave out subsection (7).

No. 32, page 138, line 44, leave out 'permanent' and
insert 'any'.

No. 33, page 139, line 1, leave out paragraph (b).

No. 34, page 139, leave out lines 3 to 5.

Mr. Darling: The amendments concern the Government's proposals for the taxation of North sea oil and gas. Our amendments are designed to delay, or to provide for phasing in, the Government's proposals. We oppose the principle of the proposals for reasons that I shall set out, but the amendments would allow the Government to delay and, therefore, provide some transitional protection if the fiscal regime were to change so that petroleum revenue tax, both the tax and its allowances, was abandoned. The remaining and consequential clauses in this part of the Bill also have far-reaching effects and we will return to them later in Committee.
However, the amendments are also designed to draw the Government on what exactly is their strategy for oil taxation and energy policy—if they have one—and what calculations were taken into account when the Chancellor made his proposals. It should be illuminating not only for the Committee and the industry but, I suspect, for the Department of Trade and Industry and the Scottish Office, as the Treasury proposals seem to have taken them completely by surprise.
We should remind ourselves of the importance of North sea oil to the country. Without it, the country would be bankrupt. So far, 11 billion barrels have been recovered, 7 million are under production or development and a further 7·5 million are in potential developments that are known about. It is also estimated that between 4 billion and 25 billion barrels of North sea oil and gas have yet to he discovered, some of it in very difficult conditions. It is further estimated that we have between 15 and 50 years of self-sufficiency, again an important matter, and the position with regard to gas is similar, with between 20 and 50 years of self-sufficiency.
These matters are crucial when assessing the role of taxation in our overall energy strategy so that we can maximise our exploitation of this natural resource, not least because of the United Kingdom's severe balance of payments problem. We should also remember that this issue is of national importance. United Kingdom continental shelf sales in 1992 amounted to £7·7 billion—in 1984 they had been £20 billion. In 1992, they contributed 1·2 per cent. of GNP and the annual investment of £5 billion to £6 billion represents 25 per cent. of manufacturing capacity—another formidable statistic.
It is estimated that the Government's proposals will mean that manufacturing investment in the North sea will fall between £1 billion and £2 billion and it is further estimated that there will be a loss of tax revenue of between £2 billion and £4 billion over the next five years and possibly £6 billion over a 10-year period. There is no doubt that there will be a reduction in activity in the North sea.
The Ernst and Young survey of the industry is illuminating. It found that all respondents expect the number of wells drilled in the United Kingdom sector to decrease. A clear majority of those surveyed said that the attractiveness of the United Kingdom for future investment had diminished, and exploration was expected to decrease as a result of the Budget. That is the majority of people involved in the North sea and other United Kingdom sectors. Virtually all respondents expected a decline in the number of personnel working in the United Kingdom offshore industry. That is something which no Government can afford to ignore, especially as we have just heard that if the Swan Hunter yard closes another 6,000 people will join the dole queue.
The Committee will know that there has been a mixed reaction to the Government's proposals. We oppose them for three reasons. First and most important, there is a substantial risk that companies will take their new-found profits and invest them abroad. There is no guarantee that the profits that the companies now have will be invested in the United Kingdom sector. Secondly, the traumatic disruption caused to the industry by the suddenness of the Chancellor's announcement will mean that between 10,000 and 30,000 jobs will go. Some of those jobs are of great technical and economic importance and many may be lost for ever. Thirdly, there is no evidence that the Government have any strategy for oil and gas, just as we know that they have none for the coal industry.
We should also bear in mind that much of the future development is likely to be high risk and high cost. Some of the oil finds yet to be explored lie to the west of the Shetlands, in difficult waters. Others are in the Rockall basin, and present formidable challenges in retrieval. Some will be small and will not pay PRT, but, taken together, they could be viable provided that we get the taxation framework right.
I want to look at the Government's position to assess their case for making the change. Their position is a simple and familiar one—the Chancellor was strapped for cash. He desperately needed every penny that he could get. The Chancellor's strategy is a short-term, some would say very short-term, one. Indeed, some unkind people say that the only Chancellorship that he will have in July is that of the Duchy of Lancaster, in charge of the citizens charter—the ultimate humiliation for any Cabinet member.
Even on a charitable view, the Chancellor's calculations appear to have spanned three or four years, rather than the three or four-Government period that is the normal time span for the industry. The Government looked at what has happened with PRT over the recent past and their attention was drawn, not unreasonably, to the fact that they have been repaying PRT over the past two or three years. Instead, they should have looked at what has happened over the past 10 years, because the picture is rather different.
PRT receipts peaked in 1984–85 at about £12 billion because of high production and high oil prices. However, in 1991–92, revenues plummeted to £1 billion, due to the amount of eligible cost being claimed, and a net £200 million of PRT was refunded. I understand that the Minister may be about to tell us that the figure has escalated to £900 million so as to make his proposals more acceptable. However, we know that £200 million was refunded, whereas, in that period, the Government received only £50 million in PRT receipts.
Why did that happen? The Government have conveniently ignored the fact that between 1988 and 1992 two significant events, which must be considered, occurred. First, the Government and the industry were anxious to stimulate production, incurring high exploration appraisal costs. According to the Government's Brown Book—the annual assessment of what is happening in the North sea—a record number of wells were drilled in 1991–92. It says:
During 1992, a total of 131 exploration and appraisal wells were drilled. Although this was 55 fewer than in the previous year, it should be remembered that 1991 saw the third highest level of drilling activity since exploration began

in 1964. Exploration success has increased to a rate of 25 per cent., with 20 significant offshore discoveries being announced during the year, 4 more than in 1991.
It is not surprising that the allowances claimable by the industry increased. Equally, it is not surprising that in the past two or three years the picture has not appeared as attractive as it did in the previous 10 years.
The second factor that we have to consider is that the industry is still reeling from the Piper Alpha disaster which had virtually stopped production. Since then, substantial claims have had to be made in order to implement the Cullen recommendations.
At a time when the PSBR is forecast to hit £50 billion, abolishing exploration and appraisal relief seems attractive at first sight. The Government's £700 million gain claimed by the Chancellor arises as a result not of increased tax revenues, but of allowances that will not be claimed. The gain is based on exploration and appraisal and that may never take place because of the Government's proposals.
The £700 million claimed by the Government, by which the Minister will set some store, is disputed by many in the industry and outside. Wood Mackenzie, which has a formidable reputation as a commentator on the industry, suggests that the total might be nearer £115 million. Whatever it is, and even if we split the difference between the Government and Wood Mackenzie, the gain to the Government has to be set off against the cost of losing jobs in the industry. If the total is anything like 20,000, the Government have a formidable loss, not just in tax revenues forgone—most of those working in the industry are well paid—but in the cost of maintaining them on the dole.
The Government ought to look at the PRT for the past 10 years. They must bear in mind that much of the future North sea investment will be in technically difficult areas. Production is set to rise in the middle of the decade, but many future discoveries will be in difficult areas.

Mr. Tim Smith: Does the hon. Gentleman agree that the principal object of any tax is to raise revenue to pay for public services? What does he think the revenue would have been from the tax had the Government not proposed the changes that we are discussing this afternoon?

Mr. Darling: It is clearly difficult to predict the future rate of PRT because we do not know what will be discovered. Clearly, even with all the allowances, if oilfields do not pay PRT because it does not fall to be paid, it will be difficult to make projections of how much will be paid.
If the whole PRT regime is abandoned, first the scope for the Government levying a tax on large profits is gone, and, secondly, the allowances that are available under the PRT regime are no longer available which is a discouragement to companies to consider potentially large fields in difficult areas, as they will have to meet the entire cost of exploration and appraisal work, while at the moment they can claim substantial set-off.
The PRT regime provides the taxpayer with a potential gain, depending on what is found and a number of other factors, but it also provides a useful framework to ensure that development continues.
The hon. Gentleman raised a fundamental question which I shall address in a moment, but first I shall give way to the hon. Member for Gordon (Mr. Bruce).

Mr. Malcolm Bruce: Is not the problem that the Government have removed their previous achievement of a stable regime in the North sea? The hon. Gentleman is making a reasonable point. Abolishing PRT removes the automatic regulator if the price goes up. No oil company in the world believes that the Government would not change the tax regime without consultation just as quickly and just as negatively as they have this time.

Mr. Darling: The hon. Gentleman makes two important points. First, everyone to whom I have spoken in the oil industry, including those who have said publicly that they were in favour of the Government's proposals, freely admits that if the North sea sector started making large profits, in the middle of the decade for example, no Government of whatever colour would stand back and forgo the opportunity to raise money if the alternative was, for example, extending VAT to children's clothes or food or something else dear to the hearts of Conservative Members, such as raising income tax or taxation generally.
The hon. Gentleman's second point is equally important. The PRT regime was developed during the Conservative Government of 1970–74. It was implemented by the Labour Government in 1975 and it has been maintained, by and large, with cross-party support—although certainly with many adjustments—between then and the present time. It was then suddenly changed, without warning even to the Government's main energy Department, if one can call the Department of Trade and Industry such a thing—I am pleased to note that the Minister for Energy has at last turned up to listen to the debate—which is a major departure from normal practice.
I do not argue that the Government should consult every time they make tax changes—for obvious reasons—but when one considers the importance of the North sea and the United Kingdom continental shelf to the country's economy, it seems madness for the Government to embark on a course of action that could jeopardise the future of the North sea for this country.
The hon. Member for Beaconsfield (Mr. Smith) raised an important matter. There is a legitimate public debate about whether the public ought to subsidise, encourage or shield companies from the risk of exploration. I t is a legitimate debate, but the Government have not yet joined it. There is an argument that companies should shoulder the whole risk themselves; equally, there is an argument that we should not throw away a tax regime that provides a subsidy—a shield, if you like—for the risks. It is important that the Government look after the United Kingdom's strategic interests in ensuring that we maximise the natural resource that we have in the United Kingdom continental shelf sector for as long as possible.
There is no point in denying that the changes will prolong the life of some existing fields. The Government have a point on that. There is equally no doubt that some incremental development around fields is becoming more attractive—there have been announcements in the past couple of days saying just that—but when one considers the effect of abolishing cross-field allowance and the change to the tariff receipt regime, it is by no means clear that incremental development will be as attractive.
In any event, in case the Minister is tempted to pray in aid the BP announcement yesterday and the Shell announcement about a month ago, I should mention that

both developments were planned some time ago. Oil companies cannot announce major developments the day after the Chancellor has made an announcement.

The Financial Secretary to the Treasury (Mr. Stephen Dorrell): Is the hon. Gentleman suggesting that Dr. Gibson-Smith, the BP exploration chief executive, was telling an untruth when he said yesterday that the new BP developments were
made more likely as a consequence of the Budget changes to Petroleum Revenue tax"?
Those are not my words, but the words of the man in charge of exploration at BP.

Mr. Darling: Of course I am not suggesting that he is telling an untruth. What the gentleman said is that these developments became more likely. Is the Minister suggesting that in Shell people suddenly got up one morning and said, "Right, let's go ahead with this development"? They were considering it for some time and looked at all the sums. Then there was the fiscal change, and they said, "Yes, this is a great advantage." To say that had it not been for the Government changes nothing would have happened would be absolute nonsense. What the representatives of Shell were saying is entirely consistent.

Mr. Dorrell: I think the hon. Gentleman said that Shell was thinking about it before the Budget, that there were fiscal changes and that, following the fiscal changes, Shell decided to go ahead with it. Is that the hon. Gentleman's position?

Mr. Darling: It may surprise the hon. Gentleman to learn that, unlike some of his colleagues, I have no direct interests in the oil industry. I was not at the Shell board meeting when these matters were discussed, nor was I privy to its consideration; but it is entirely likely that Shell has been considering this matter for some time. These developments cannot be worked up from scratch. Of course changes are taken into account. I hope that the Minister will concede that other companies would have gone ahead with work that is now less attractive because of the petroleum revenue tax change, which will have a damaging effect.
I may be wrong, but I think that the Minister for Energy was nodding when I made my preliminary remark that these schemes were not just dreamt up after 16 March. I do not understand the point that the Minister is making. He seems to be making a great deal out of nothing in particular.

Mr. Alex Salmond: Human nature being what it is, would not it be reasonable to suppose that the companies that will gain large sums of money—we are talking about tens and, perhaps in some cases, hundreds of millions of pounds—from tax changes might believe that they are a good idea?

Mr. Darling: That is self-evident. I noticed a flurry of announcements yesterday. It is hardly surprising that BP, Shell and other companies are happy about the proposals. As I shall develop shortly, the changes mean that they have the money in their pockets and they will decide where to spend it; we might want to consider the implications of that.

Mr. Tim Smith: We should not object if they have the money in their pockets and decide where to spend it.

Mr. Darling: From a sedentary position, the hon. Gentleman makes an interesting point. He claims that we should have no objection if companies have all this money in their pockets and decide where to spend it. He is right up to a point. From the point of view of the oil companies, that argument is overwhelming, but from the point of view of the United Kingdom, the Government and the people, surely we are entitled to ask ourselves whether we want a tax regime that runs a substantial risk of investment being exported to other parts of the world at the expense of a resource which we have in this country. Every Government, of whatever colour, have used the tax regime to maximise the resources available to them. If the hon. Gentleman thinks that that is wrong—possibly he still belongs to the rump of the Conservative party that believes in that system—that is fine, but it is not a view which we take.

Mr. Robert Hughes: The hon. Member for Beaconsfield (Mr. Smith), who is muttering from a sedentary position, seems to forget that it was the Chancellor who said that the objective of the changes in the PRT was to raise revenue for the Government. It is the hon. Gentleman's Government who are attacking them.

Mr. Tim Smith: We do not want to tax people.

Mr. Hughes: He says that they do not want to tax people. The Government are caught on two hooks. On the one hand, they do not want to admit that they are applying the tax; on the other, they are trying to pretend that it is our fault that it is being done.

Mr. Darling: I agree with my hon. Friend. The hon. Member for Beaconsfield seemed to take the view that it is best to give as much money as possible to the companies, which will decide what to do with it. That is statable case, but there is an overarching, strategic view that the Government have to take on behalf of the people.
No doubt it would find favour in most parts of the Committee if I said that companies might be encouraged to search for large fields under the new system, whereas they might have been less enthusiastic under the old. Although they are no longer protected from exploration and appraisal costs, the risks might be high, but the gain would be immense. I dare say the Government will seek to argue that.
The only point that must be made is that when an oil company looks for oil, it does not know what it will find. In many cases, oil companies have gone into areas where they thought the field might be small and have discovered that it was much larger than expected. The argument is that they would not have gone looking in the small field if protection had not been afforded by the PRT regime.
In an excellent report on the impact of the changes on the Grampian economy published a few days ago, Professor Kemp of Aberdeen university said:
For new exploration and development activities the tax system facing investors is simply the corporation tax at 33 per cent. By world standards this is unique for a major petroleum producing province. Unfortunately there is no guarantee that this situation will be permanent and the political risk of further changes must be quite high.
The oil companies realise that, but it is interesting that Professor Kemp considers that the low tax barrier is unique. I suggest that the reason is that many countries take the view that there must be some fiscal incentive to go into difficult areas and, therefore, keep oil companies

operating in a sector over which they have control, but if profits arise on a large scale, the taxpayer must be entitled to a fair share of them.
There is every prospect that some large oil companies will pocket their windfall gain and reinvest it elsewhere. We must bear in mind that we are in competition with many parts of the world. Substantial oil reserves are known to exist in the CIS, off south America and in the far east. Even in the United States, a high-cost country where profits are equally high, there are reserves as yet unrecovered.
4.45 pm
Boardrooms are bound to take a broad view about where it is best to go. The North sea is a high-cost centre. If companies have the cash in hand, they will not have to invest it in the North sea; they can go elsewhere. Therefore, Britain will in effect be subsidising exploration in other parts of the world. To a large extent, the PRT system locked oil companies into the United Kingdom sector. Ultimately we will become an oil importer, but I see no reason to hasten that day.
The Government will also no doubt argue that oil companies were engaged in a spate of drilling where prospects were poor. However, given that the North sea is a mature field and that many new prospects are in difficult areas, that argument does not hold much strength. The other point that ought to be made is that in 1992 the success rate of drilling was 1:3·6, which is high for the industry.
I do not believe that the Government's case is proved. There is substantial doubt about the claims. I accept that over the last week, and particularly in the week following the Budget, good news was announced by companies that have prayed in aid the Government's changes, but, taken overall, there is a substantial risk that companies will be tempted to invest their profits in other parts of the world.
The position of the oil companies has to be covered. The position of the industry rather depends on whom one speaks to. Naturally, BP is laughing all the way to the bank, if not to other parts of the world. An examination of its most recent annual report is illuminating. When it deals with potential profit centres it says, among other things:
In the Azerbaijani sector of the Caspian sea we are part of a consortium which has a 20 per cent. interest in the Azeri field where about 1·8 billion barrels of recoverable oil are thought to exist.
Off Vietnam, it has started an extensive exploration drilling programme; in South Africa, it is investing in a refinery, and it is expanding in eastern Europe. There is nothing wrong with that.
It is good to see a British company doing all that and I would not want to discourage it, but hitherto there has been an incentive for many companies to stay in the North sea and to carry on drilling in sometimes difficult areas. If a company has the money in hand and has a choice between going to a high-risk, high-cost area or to an area where costs and risks are less, it might choose the cheaper option. I would not argue that one should seek to hold oil companies in an area that they would not want to be in. I do not think that anyone would argue that in regard to the North sea, but, again, I stress my doubt about our throwing away the incentive that we have.
It is not surprising that BP is pleased. Like the Government, it was strapped for cash last year and its tax bill has been cut by about £140 million. Nor is it surprising


that it has been keen to encourage its colleagues in the oil industry not to complain, and to join the Government in praising the Chancellor's announcement. Shell has also joined forces with BP in announcing developments. Those developments were not planned recently.
While some companies say that new investment will be encouraged, others say privately that since 16 March two things have happened which we should consider. First, the fiscal and political stability which they have valued in the North sea regime—a point made by the hon. Member for Gordon—has gone. It was of great importance and should not have been lightly thrown away. Secondly, the traumatic shock caused by the Chancellor's announcement may make many people in boardrooms, often in the United States with no direct interest in this country, look long and hard at the future of the North sea and decide that future investment lies elsewhere. As I have said, we are in competition with other parts of the world and the Chancellor may have provided the jolt which will provoke some companies to go elsewhere. Equally, for some oil companies the Government's proposals are disastrous, depending on how they were placed.
What about the supply industry? Exploration and appraisal work will decrease. In some cases, exploration will cost about four times more than in the past. Every oil company has said that exploration work will reduce. Indeed, already supply companies in the north-east of Scotland and other parts of the United Kingdom have started to indicate to their work forces that they will be laid off. More than that, many companies entered into obligations with the Government based on an existing tax regime which has been changed.
I am glad that we have on the Treasury Bench both the Financial Secretary to the Treasury and the Minister for Energy. Perhaps they will share with us the difference of opinion that is apparent between the Treasury and the Department of Trade and Industry. Press reports suggest that the DTI regards some of the obligations that companies have entered into as being legally binding, while the Treasury does not. Which is correct? It is crucial for them to say which obligations they regard as legally binding. Oil companies may test the point, but it would be useful to know Government thinking on the subject.
It is also worth bearing in mind that there were changes not only to the petroleum revenue tax but to the cross-field allowance regime, which has made any incremental developments attractive to the tariff receipt allowance, which discouraged the profusion of pipes across the North sea and which, as a result of its obligation, may skew the market—for example, in respect of offshore loading—in a way that is not altogether desirable.
The position of the United Kingdom in terms of the taxpayer and the economy should be at the forefront of the Government's consideration. The Government are proposing to abandon what is essentially a profits tax. Moreover, as I have said, they are abandoning a mechanism for locking oil companies into the North sea sector, which is a high-risk and difficult area. Indeed, we may have provided an incentive for them to go elsewhere, so our fundamental concern must be about where the money will be spent.
Will the companies keep the new profits, invest them in the North sea or take them elsewhere? We are also giving up future tax revenues—some say, on a conservative estimate, of up to £6 billion over the next 10 years. The

balance of payments—an issue of great concern, given the fact that it is in desperate straits at the height of a recession—will not be helped if we start importing oil or gas.
The effect on jobs must come into our consideration of the whole issue. The Government—it is not usual for them to concede that anything they do costs jobs—have on this occasion conceded that up to 10,000 jobs will go. In his study, Professor Kemp says that between 7,000 and 11,000 jobs may go in the United Kingdom. Others have put the estimate as high as 30,000.
Considering that it costs £9,000 to keep a person on the dole and that most of the people about whom we are speaking are well paid, the cost to the Exchequer of losing those jobs would, I believe, exceed the savings likely to occur as a result of scrapping the petroleum revenue tax regime.
It is nonsense for the Treasury to look at the issue from one aspect. It considers that it will save perhaps £700 million by scrapping PRT. On the other hand, the Department of Social Security will have to pick up the tab, and it is clear—north American experience, where a similar state of affairs existed a few years ago, bears this out—that once those people have been lost, their valuable skills will not easily be recovered.
We are speaking not simply of people working on North sea oil rigs. There is a great deal of onshore activity involving geologists, physicists and people in the support industries, all of whom are highly skilled and highly paid and who contribute substantially to the nation's economy. We run the risk of losing some of them from the industry, while others will go abroad and will be lost to the country for ever. There is the additional problem that some companies may be tempted not just to cut back on exploration appraisal but to cut down on safety.
Most people accept that at some point there must be a change in the taxation regime. The North sea oil sector is mature and it has been obvious that the PRT regime must be adjusted and perhaps one day brought to an end. But this is not the time to do that, for the reasons I have given. With oil prices expected to remain low for 10 years or so, there is a limit to how much can be taken from what is essentially a windfall profits tax.
The Government should bear five points in mind. First, the PRT system should not be scrapped now. There is scope for adjusting the rate of the tax and the rate of allowances that can be claimed. There is a case for capping the allowances. All such moves would be possible under our amendment, and we shall develop those themes when we debate later clauses. The amendment would allow the phasing in of transitional relief, and if the Government are not prepared to concede the principle, they should accept that transitional relief would be of great benefit to the industry, onshore and offshore.
Secondly, the Government might consider abolishing the royalties that still exist for pre-1983 fields. That might provide assistance. Thirdly, the issue of speculative drilling could be dealt with through the licensing regime because it is for the Government to decide where companies go, because they grant the licences.
Fourthly, the way in which exploration and appraisal allowances are granted could be adjusted. For example, allowances could be given on the basis of part now and part after five years or so. The Government could take all sorts of measures to make the allowances more attractive to companies, while balancing those measures with the legitimate interest of the Treasury in recovering funds.
Fifthly, we could examine the cross-field and tariff allowance scheme. Sixthly, as I said, if the Government are determined to abandon PRT at this stage—although they would be wrong to do so—they must look carefully at the question of transitional relief, and our amendment would provide for that.
There is no doubt that the Government announcement has caused a major dramatic disruption to North sea activity. Transitional relief is a subject to which we shall return when we debate later clauses, perhaps after the Government have had a chance to reflect on what has been said. The Chancellor's record of forecasting and making financial judgments is appalling. There is no evidence to suggest that his knowledge of geology is any better or that his knowledge of what is happening in the North sea can be relied on.
North sea oil and gas are among this country's few natural resources that remain to be exploited. We are in competition with the rest of the world. Other countries are desperate for industry and are willing to provide incentives to get oil companies to go there, especially for the economic gains that can accrue.
Hon. Members in all parts of the Committee, and the Government in particular, must reflect on those issues before throwing away a regime which, by all-party consent, has served the nation well. We have an opportunity tonight to ask the Government to take stock, to coin a phrase. It would be a tragedy if North sea oil were to become another casualty of the Chancellor's poor judgment.

Mr. Tim Smith: The changes proposed by the Government have my full support. That applies to their substance and timing. My hon. Friends should not be in the slightest surprised that Labour Members are attached to an 83 per cent. tax rate, since that was the top rate of income tax in 1979. They like high tax rates. They like taking money out of people's pockets and spending it on their behalf. That applies as much to oil companies as to individuals.
That was the basis of the case made by the hon. Member for Edinburgh, Central (Mr. Darling), who believes that the Government are in a better position than the oil companies to make investment decisions. I take the opposite view. I believe in low business taxes because with low taxes—the standard corporation tax rate has been reduced from 52 to 33 per cent. in the last 14 years—investment is attracted to the United Kingdom. Indeed, that is why there has been an increase in inward investment. That applies as much to North sea oil as to business generally. Low business taxes are good. Not surprisingly, Opposition Members such as the hon. Member for Ashfield (Mr. Hoon) support high business taxes.

Mr. Geoffrey Hoon: I am curious about the hon. Gentleman's introductory remarks. He criticises Opposition Members for apparently wishing to raise taxes. Is he not aware that the measure that he is defending will have the effect of raising taxes?

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Mr. Smith: I shall come to that. It will raise more tax, but the hon. Gentleman will be aware that when the Conservatives have reduced the rate of income tax, the yield has risen. We do not find that surprising because high

taxes are a disincentive to people to produce more income. I shall establish during my remarks that, as a result of the changes that we propose, more income and more revenue will be generated.
I remind the Committee that we are discussing a revenue tax and not a profits tax, although the hon. Member for Edinburgh, Central continually referred to the latter. More revenue will be generated from the North sea, with the result that the yield from petroleum revenue tax will rise. The large oil companies, which the hon. Gentleman went out of his way to attack, will invest more in existing fields.
Not surprisingly, the oil companies hold on their shelves a number of prospective development projects whose economic viability turns on the oil price at a particular time and on the fiscal regime at that time. We were told by the hon. Member for Edinburgh, Central that the oil price is not likely to rise over the next 10 years—it is nice to have his forecast. If that is correct, these projects would have continued not to be economically viable, but because of the Budget changes they will now be viable and the revenue from existing fields in which Shell, BP and Esso have already invested heavily will rise further—as will the revenue from PRT.
The hon. Gentleman says that the result of all this will be that the profits are invested abroad. I believe that much of the money will be invested in new production in existing fields where there is a great deal of marginal capacity yet to be exploited—rather more than there is in the prospective fields on the edge of the North sea, which are often in much deeper water and it would cost much more to extract the oil from them. I concede that they may hold reserves, but the cost of extracting those reserves would be much higher. It makes a great deal of sense, therefore, to go for the reserves in the existing fields, from which the oil can be extracted with relative ease.
We need the change of regime to respond to changes in the North sea. The hon. Member for Edinburgh, Central says that we have had a stable regime for many years. In the next breath he claims that the North sea is now mature and concedes that changes must be made. The only issue at stake is one of timing. I think that this is the right time while he does not.
Now is the right time, too, because there has been a large fall in the price of oil. Of course it was right, 10 years ago when the oil price was much higher in real terms, to have a high marginal rate of PRT, but times change. In respect both of the greatly reduced oil price and of what the hon. Gentleman describes as the maturity of the North sea, the change is timely—

Mr. Salmond: Let us imagine that the oil price does not go along with the forecast given by the hon. Member for Edinburgh, Central (Mr. Darling) and sharply increases in the near future. Does the hon. Gentleman think it likely that any Government, regardless of political colour, would leave in place only corporation tax, faced with large windfall profits to be made from the North sea? Does he think it likely that any Government, regardless of political colour, would leave in place only corporation tax, faced with large windfall profits to be made from the North sea? If he thinks it likely, he will find that few people in the industry will believe it—given the circumstances of the early 1980s, when a Government headed by Baroness Thatcher increased the taxation regime left them by the right hon. Member for Chesterfield (Mr. Benn).

Mr. Smith: The hon. Gentleman knows very well that all Governments claim to be putting in place stable tax regimes, but they all modify them according to changed circumstances, such as I am describing. The oil price has dropped, so it makes sense to change the regime in line with what the Treasury proposes.
Perhaps the best reason of all—I think that the hon. Member for Edinburgh, Central just about conceded it—is that we raise taxes to pay for public services, even though no one likes paying them. It is nonsensical to keep a tax that involves either no yield, as it did last year, or a repayment of tax to taxpayers, as it did the year before. It is not sensible to continue with such a regime for long and it must be right to change it so that the tax is abolished or at least yields some revenue for the Treasury.
Moreover, the higher the rate of tax and the higher the allowances, the more economic distortions result. It is good if we can bring tax rates down, because it is much better for industry and commerce generally if investment decisions are made on their merits—on the likely yield from the investment—and not purely for tax reasons. I fear that in the North sea recently exploration companies have been making investment decisions principally for tax reasons, and that cannot be right.
What we need and will now have is a broader tax base, with lower rates and lower allowances. The ultimate example of that is the abolition of the tax altogether, which is what will happen with the new fields.
Of course there will be a change in the balance in favour of production and against exploration, but that makes a great deal of sense in the circumstances.
I understand the anxieties about the transitional arrangement. Such arrangement are always of critical importance as we move from one tax regime to another. The difficulty with the proposals in this respect is that a considerable cost would be involved, and it could be dealt with, as I think the amendments recognise, only by increasing the PRT rate. If one believes that a tax change is right and will benefit the United Kingdom economy and the North sea oil sector, it must be right to make this tax change straight away, which is why I support both the substance and the timing of the changes.

Mr. Robert Hughes: The debates on this subject so far took place before the events of last Thursday—the Government debacle in the county council elections in England and the disastrous result for the Tory candidate in Newbury. Since then, we understand that the order has gone out from No. 10 Downing street that Ministers should be more caring and more listening. We wait to see whether the message has got through to the Financial Secretary.
Since the Second Reading debate, the discussion has moved on and some inconsistencies in the Government's approach have appeared. Winding up on Second Reading, the Financial Secretary admitted that there had been no discussions with the oil industry. He defended that in the following terms:
I will comment on the proposition that there should be consultation with the industry. It seems to be a rather odd proposition that, before a Government consider raising tax, they must engage in consultations to give notice of their intentions so that the industry can bring forward its activity to take advantage of the tax system that we are seeking to remove."—[Official Report, 26 April 1993; Vol. 223, c. 318.]

He still refused to say what discussions had taken place with the DTI or the Scottish Office, or what advice he had received.
On the face of it, that would seem a reasonable defence. However, the Minister took a different tack when giving an interview last week to Robin Chrystal for the Press and Journal (Aberdeen). If the article is incorrect, I am sure that the hon. Gentleman will tell me so:
In a bullish mood the Minister chided offshore companies which have complained about the change. 'They should have seen it coming,' he said.
Later, the Minister all but ruled out any change,
as he revealed that civil servants had been working on reforming the PTR regime for the last three and a half years.
In my innocence, I believed what the Financial Secretary said in the earlier debate, thinking that he had got his proposals wrong because he had not had time to think them through or to work out their effects on sections of the industry. Now we are told that the changes have been worked on for three and a half years.
It certainly seems to be implied that the industry was party to the discussions. The Minister seems to be shaking his head, but if the industry was not party to the discussions, how could it have foreseen the changes?

Mr. Dorrell: My point was that this is a sophisticated industry which employs a large number of sophisticated tax advisers. One does not need to be a rocket scientist to work out that a tax system costing the Exchequer money is not one that will last for much longer.

Mr. Hughes: The Minister seems to be saying that the oil companies should have looked into their crystal ball and seen which way the wind was blowing and that it was all their fault that they were caught out, not the Government's.
The Minister's first proposition to the House was nearer the truth—that the possibility of the changes was kept from the industry to avoid its taking advantage of the information. The hon. Gentleman cannot have it both ways. Either he kept it quiet, or the industry had a good idea what was going on. According to the article, the industry knew all about this, so it was the industry's own fault. What he still has not told us is what discussions he had with the Department of Trade and Industry over the past three and a half years. He himself has indicated that these changes were under discussion. I am sorry that the Minister for Energy has left the Chamber, as his body language, if not his verbal language, might have given a clue as to what discussions had taken place and what advice had been given to the industry. In any event, the Minister cannot claim that he acted out of ignorance, as he certainly had ample opportunity to get things right.
All else having failed, the Financial Secretary's fall-back position is that there may be up to 10,000 job losses but that such an estimate is based on a wildly improbable scenario. Well, it is the Treasury's own scenario—and the Treasury is not given to putting forward such scenarios. I accept that we must all be careful about crying wolf. We are indebted to Grampian regional council for commissioning a study by Professor Kemp of Aberdeen university petroleum and economics consultancy. I appreciate that both Ministers took time out of a busy day to meet a deputation from the north-east of Scotland, including the convenor of Grampian regional council Dr. Middleton, the Lord Provost of the city of


Aberdeen James Wyness, the chairman of Aberdeen chamber of commerce Robin Pollock, and representatives of all political parties.

Mr. Ernie Ross: Including the Tories.

Mr. Hughes: Yes, the Conservatives were certainly there.
In this regard, there appears to be near-unanimity in the north-east of Scotland—a very rare occurrence. I understand that the hon. Member for Kincardine and Deeside (Mr. Kynoch) made a mysterious appearance at the meeting this morning. I do not know what he said, but perhaps at some stage he and the hon. Member for Aberdeen, South (Mr. Robertson) will tell us not just what they think about the situation but also what they intend to do about it. If last night's voting is anything to go by, they will back the Government all the way.
The Financial Secretary has seen a copy of the report to which I have referred and will know that Professor Kemp and his unit are very well respected in the oil industry. These are not people who have suddenly come out of the woodwork; they have studied the industry for years, and their conclusions must be taken very seriously. I do not have the time this evening to go into the detail or the methodology of the report. I shall say simply that it is well reasoned, well argued and well researched. It deals with the effects on each sector of the industry and does not concern itself simply with the downside. The two conclusions are very sober and are certainly not exaggerated.
It is conceded that some parts of the industry will do well. Those with fields in production will have an incentive to prolong the active life of their reserves. Professor Kemp's guestimate—he admits that that is what it is—is that, as a result of the changes, about 1,000 jobs may be retained or created. Others in the industry argue that the incentive to prolong the life of the fields is there anyway. There is great financial advantage to be obtained from keeping the fields going. Sooner or later, when production is exhausted, the rehabilitation costs of removing structures and restoring sub-sea conditions will be massive. In any event, extraction policy will not be abandoned for the sake of minor tax changes; the real incentive is avoidance or deferral of rehabilitation costs.
Everyone accepts that there is a downside. I refer to the prospects for the exploration and appraisal of new fields.

Mr. Tim Smith: Is it true that Professor Kemp's analysis considers only prospects involving quantities under 50 million barrels?

Mr. Hughes: I do not think that that is the case. Professors Kemp's report presents a study of fields of that size and smaller fields. This is precisely the area in which the major damage will be done. If there were a sudden huge oil discovery—twice or three times the size of the biggest field, larger than Forties or any other—the tax changes would have no effect in this regard except that, as we know perfectly well, such a find would result in changes in tax policy.
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I do not know whether it is fashionable or allowable to quote Aneurin Bevan. He said, "Why look in the crystal ball when you can read the book?" Anyone who reads the book can see quite clearly that there has already been a

downturn in exploration. Professor Kemp argues that that trend will be accelerated. Using the very modest multiplier of 1·25, a reduction of 33 in the number of wells drilled would result in 8,500 job losses—7,500, allowing for the 1,000 which might be saved—and a reduction of 50 in the number off wells drilled would result in 12,250 job losses or 11,250 net. Studies carried out by Aberdeen university over many years have shown that a multiplier as high as 1·78 could be used quite safely, without risk of exaggeration. That would result in the loss of 10,780 jobs or 9,780 net—or 17,020—16,020 net. At a conservative estimate, Grampian region would lose 4,000 to 6,000 jobs—a very serious situation on the basis of either forecast, and one that ought not to be discounted.
The message is quite clear: if the Government are not willing to change, we must at the very least have transitional relief, with capping, so that the smaller companies derive the greatest benefit and thus avoid the prospect mentioned by, among others, the hon. Member for Beaconsfield (Mr. Smith)—that there will be some sort of distortion of activity. The hon. Gentleman's approach to business is novel. The proposition that people go into the high-risk business of North Sea oil, which involves very large capital costs, on the basis that they will make money from tax relief is preposterous.

Mr. Tim Smith: The hon. Gentleman has again mentioned the question of economic distortion. Did not Professor Kemp say that it is difficult to defend the fact that, under the present regime, post-tax returns exceed pre-tax returns? Did he not accept that the pre-Budget position was unsatisfactory and was in need of reform?

Mr. Hughes: If the hon. Gentleman wishes me to go through every page of Professor Kemp's report and argue every detail, we shall be here until well after midnight. The hon. Gentleman is being very selective. I do not think that there is any difference between the parties in the Committee with regard to the fact that the Government faced a need to find money. That is the Government's basic objective—it has nothing to do with the unsatisfactory nature of the system. Having made their decision, the Government naturally looked around for suitable candidates for easy pickings. They took note of the oil industry's negative tax receipts, the pay-back, and ignored the fact that most of the costs that had to be paid back arose after the Piper Alpha incident. They did not work through the way in which smaller companies—the exploration companies in particular—would be hit.
It is not just Professor Kemp's report which presents these conclusions about the downside of the tax changes. The same message comes from many quarters, one of which is the Association of Service Sector Oil-Related Companies, which represents about 300 companies. Again, I could deal with that body's comments individually, but if I did so very few other hon. Members would be able to take part in the debate.
Wood Mackenzie—another company which has a great deal of experience in the industry and is very concerned about the changes—says in its report:
If, as expected, the United Kingdom exploration and appraisal drilling levels fall sharply, the measures could be bad for the country in the long term, both in terms of balance of payments and the Government's revenue from the North sea.


That company has no political affiliation to the Labour party. I should not like to put a political label on Ian Wood.

Mr. Ernie Ross: Tory.

Mr. Hughes: My hon. Friend is entitled to his view. I do not want to put anyone off Ian Wood's sagacious comments by saying that he is a Tory. They are good comments. These are serious dangers.
Professor Kemp points out that many companies may find it difficult to finance and develop export markets. As the downturn in the oil industry comes about—it is bound to come sooner or later—we in the north-east of Scotland do not want to be left with a ghost town. Aberdeen has benefited much from the North sea and so has Grampian, but we have not done so well in terms of cash from the Government to pay for the infrastructure. We do not want to be left with nothing once the industry has gone. We must build up indigenous companies which not only supply the North sea but are involved in the export market.
Confidence in the North sea is important. My goodness, the Government should know about confidence—they are for ever telling us about confidence, how important it is and how vital it is for the future of Britain that everyone should have confidence in the Government. The Government seem to think that they can destroy the confidence of companies in the North sea and that, when it suits them in two or three years' time, when perhaps they will change the regime again for their own purposes, the companies will simply come back again. The fact is that companies will not come back again once they have gone. They can go elsewhere to a less hostile physical environment and a more stable, congenial or amenable tax regime—and if they go. they will not come back. The Government simply cannot play ducks and drakes with the economy of north-east Scotland or the country at large.
The Financial Secretary and the Minister for Energy seem to have disappeared. I do not know whether they have rushed out to read the reports again and to consider whether to change their minds. I do not know whether the Chief Secretary to the Treasury has had reports of this morning's meetings, at which all said that they had a good hearing from the Financial Secretary and the Minister for Energy. Perhaps the Chief Secretary is frightened that they listened too well and has sent them packing so that he can take over the debate. We shall have to wait and see.
I hope that the Government will seriously listen to the representations from all parties, from many sections of the industry and from the whole of commerce. The chamber of commerce is certain that unless the Government are prepared to relent, unless they are prepared to have proper transitional relief, unless they are prepared to stop thinking only of the short term, great damage will be done to the North sea oil industry, to the economy of Grampian and to the country at large.

Mr. Roger Knapman: I am not concerned about the overall direction of the changes. If I had such doubts, I assure my hon. Friend the Financial Secretary that his excellent speech on Second Reading would have brought them to an end. I have no doubt that my hon. Friend's commitment to a low tax, low allowances regime, which is much simpler to administer and operate, is a perfectly worthy policy which I am happy to support. Nor, despite comments from the Opposition Benches a few

moments ago, do I doubt the need to raise extra money from time to time, the need for fiscal prudence and—I hope that this will be the reality—an extra £700 million from the oil industry.
However, a considerable number of oil companies and—of equal importance, particularly in my constituency—a considerable number of the companies which provide the back-up to exploration, development and production, are concerned about the way in which the changes are likely to be introduced. The proposals represent one of the most fundamental changes to the North sea fiscal regime since the beginning of activity on the continental shelf and certainly the most significant shift in policy for the past decade.
Therefore, I am sure that my hon. Friend will agree that it is not unreasonable to provide some meaningful transitional arrangements, and that is the purpose of my few brief comments. Phasing in the changes would allow the United Kingdom supplies sector to adjust to the new circumstances and provide a more stable environment for the operating companies to fulfil the commitments made to the Government in good faith when licences were granted, particularly during the 11th and 12th rounds. I cannot believe that it is not possible to come up with a solution which provides a balanced phasing between the reduction in the rate of PRT and the removal of exploration and appraisal relief—this is the crux of the matter—on a fiscally neutral basis.
I was greatly reassured by my hon. Friend the Financial Secretary on Second Reading. In summing up the debate he recognised the need to avoid unnecessary dislocation and assured the House that the Government would seek ways of doing just that. I think that my hon. Friend will agree that it is crucial that the service sector in particular is given the chance to adapt. An abrupt removal of the ability of companies to offset the cost of exploration and appraisal against profits generated on PRT-paying fields could lead to a reduction in exploration activities.
Much has also been said in the past few weeks about inefficient exploration by oil companies. Some people seem to believe that their attitude to drilling wells is based on a wing and a prayer, to which is added a huge cushion from the taxpayer. I do not believe that that is so. It is difficult to reconcile that with the comment of my hon. Friend the Minister for Energy that 1992 had the highest success rate ever for exploration drilling in the North sea.
For those reasons, I urge my hon. Friend to consider seriously the representations that he has received to provide some transitional relief. The precedent is there and it can be done on a fiscally neutral basis. When the changes to the rules governing corporation tax were introduced in 1984, a major element of the Government's package was a progressive phasing out of the allowances over a period of four years. There are many parallels between those 1984 proposals and the current proposals, not least the wish to widen the tax base and reduce the level of allowances. The major difference is the lack of any meaningful transition.
I hope that proper consideration will be given to allowing companies such as those in my constituency to take their business forward in an orderly and efficient manner, and time for them to adjust is the key. I urge my hon. Friend to propose a solution which prevents the dislocation to which he referred on Second Reading. Failing that, I hope that my hon. Friend is aware of the


problems that I have sought to describe and that he will be able to address them at a later stage during the passage of the Bill.

Mr. Malcolm Bruce: At the end of last year, as a member of the Select Committee on Trade and Industry, I was heavily lobbied by oil and gas companies in the North sea who were concerned that drastic changes might be introduced to the contracts for providing gas for electricity generation. Within the Committee, I successfully resisted the idea that we should break up those contracts and so cause damage and loss of confidence within the industry.
At that time, interestingly enough, the hon. Member for Aberdeen, South (Mr. Robertson) launched a high-profile campaign on the need to do that. Then, suddenly, the Budget introduced a potentially much more damaging measure, without any warning, consultation or opportunity for the industry to express a view.
During the past few weeks, the industry has been in a state of confusion and disarray as it has tried to analyse who will be the winners and the losers and the implications. It is the job of the House and the Committee to look not just at the industry but also at the national interest over time. The hon. Member for Stroud (Mr. Knapman) referred to transitional arrangements for previous changes in the oil tax regime and to the reason why those arrangements were introduced.
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In 1986, when we suffered the effects of a sharp price downturn in the North sea, I was very active in trying to persuade the Government to introduce tax changes. It is worth reminding the Committee and the Chief Secretary, who showed no interest or attention at the time because it was not an area with which he had previously had contact, that the purpose of the changes was to try to ensure that there was a built-in incentive for companies to invest and to reinvest in the North sea so that there would be a kick-start to activity and to confidence. Those changes were successful. Activity has recovered, and there have been successes over the past couple of years in exploration activity.
Unfortunately, the Minister for Energy is not here; he has put in only a brief appearance. It is worth reminding the House what he said in the Brown Book this year:
Activity offshore continued apace. Drilling activity fell slightly during 1992 but the success rate reached a new high with another 20 discoveries of oil and gas. For the 12th year running, the increase in known reserves has exceeded production. Not only has 1992 seen a further increase in the number of fields, but production too has been above 1991 levels. There has been a record level of investment.
How is that likely to continue given the proposed changes?
Exploration activity is at a level that is near the level reached before the downturn of 1986. Following the introduction of the tax measures in 1986, there was a peak of 152 exploration wells drilled in 1990. The figure dropped to 72 wells in 1992. In 1992, there were 41 appraisal wells compared with a low in 1986 of only 40. Development drilling was the one area in which activity was high; the figure was 140 compared with 85.
The implication of the figures is that the Government are running a real risk of introducing a depression in exploration and appraisal activity when the activity is already in a downturn. The consequences are not hard to

see. I urge the Financial Secretary to take on board the point that no hon. Member—not even the Minister for Energy—disputes the one fundamental fact that the changes, if implemented, will lead to an immediate sharp downturn in the drilling industry and to a consequential loss of jobs. That is not a matter for debate; hon. Members on both sides accept that point. The Government must address the issue.
I have been interested by the contrasting speeches from Back-Bench Conservative Members. The hon. Member for Beaconsfield (Mr. Smith) said that he believed in tax-cutting measures, and that was why he welcomed the changes. The hon. Member for Stroud told us that he favoured the changes because they would raise revenue. The proposals cannot do both. Over the past few weeks, there has been confusion about whether the changes will yield a net increase in revenue.
As I said in an intervention in the speech by the hon. Member for Edinburgh, Central (Mr. Darling), the Government have done themselves considerable damage in terms of the stability and predictability of the regime operating in the North sea. The Liberal Democrats have never argued against a continual adaptation of the tax regime to meet needs, but we believe that there should be fine tuning, that the regime should be predictable and that it should be introduced by consultation and negotiation. We believe that the implications of changes should be fully understood.
The Government have proudly boasted in past years that they have created just such a regime, but they have now torn up their credit without any real consideration of the long-term implications. That is why there is a definite case for transitional arrangements, and that is why I shall support amendment No. 21.
The hon. Member for Banff and Buchan (Mr. Salmond) has tabled a constructive amendment, No. 40, to which I have put my name. It allows some flexibility in the application of the transitional arrangements, which seems to make sense. My hon. Friend the Member for Orkney and Shetland (Mr. Wallace) will be a member of the Standing Committee on the Bill, and he will table amendments on our behalf. I hope that the Government will recognise that they are constructive and workable. They should be considered as a way in which to ensure that changes are introduced without a sudden and sharp downturn in activity.
According to the report produced by Professor Alex Kemp, there is likely to be a net loss of jobs of between 7,500 and 11,250. That is a relatively cautious estimate, which accords with the Treasury's estimates. In the north-east of Scotland, the estimate is for a loss of jobs of 4,000 to 6,000, which in a relatively small economy represents a significant downturn which will have consequences on the local economy.
I lived through the downturn of 1986, so I know that it was an experience that no one in the north-east wishes to repeat. Processions of people came to my constituency surgery who had not only lost their jobs but found that, because of the downturn in activity, the fall in price of their houses had dropped them into sharp negative equity. New houses were being sold by builders at a price lower than that for similar houses and lower than people's mortgages.
Some of those people are still having to pay off debts that they incurred then. Interestingly, no measures of


assistance were forthcoming from the Government, and nothing was done to try to alleviate the hardship. We do not want to experience that again.
When I tried to enlist the then Prime Minister's support, her argument was that the North sea accounted for only 6 per cent. of gross national product and for only 0·5 per cent. of employment. That showed a cavalier and dismissive attitude. The Government's attitude towards the North sea has been that it is more a source of revenue than an industry that needs to be given stability and momentum.
The effects of uncertainty are far-reaching. I know of one company involved in the drilling supply sector in my constituency which was sufficiently concerned for no fewer than 350 of the employees to send a letter to me immediately after the Budget expressing their concern about the future of their jobs. Many other constituents have written to me expressing concern about the future.
The fabrication yards in the highlands are extremely short of orders. Highland Fabricators and McDermott's have also said that they find the uncertainty extremely worrying. The Government make great play of confidence. The sudden change in direction has damaged confidence in the industry when confidence has been somewhat fragile in recent months.

Dr. Robert Spink: Has the hon. Gentleman received any letters from the several thousand employees of BP whose jobs, according to BP, have been made more secure by the petroleum revenue tax reforms?

Mr. Bruce: That is not necessarily true. The hon. Gentleman may know that BP has made many people redundant in the past year and has very much damaged its own internal relations by the way in which it has handled the redundancies. BP is the largest employer in my constituency, so I am very mindful of what BP has said. However, I have also gone on the record as saying that BP's financial difficulties are well known. It is not surprising, therefore, that BP is likely to welcome a windfall which will help its short-term return to profitability. The balance between the long term and the short term is part of the fundamental debate, as is the balance between individual companies and the national interest.
The regime will hit one sector very hard. It is extremely unfortunate because, in recent years, we have begun to build a British indigenous drilling and drilling supply industry. It will be seriously damaged, without justification and without warning. The Government should take that factor on board; I urge them to recognise that that is the strongest case for a transitional arrangement which will allow the industry to adjust.
The second point that must be taken on board concerns the success rate of exploration—precisely the matter to which the Minister for Energy referred. The danger now is that the Government are encouraging people to invest in the existing infrastructure at the expense of seeking new fields and new developments for the future. Exploration is, by definition, an uncertain business, and incentive to explore has been extremely productive in the national interest. There has been plenty of evidence of that, not least in either the fourth or fifth round in which blocks were auctioned, when Shell and Esso paid £21 million for the so-called golden block, on which they proceeded to drill three dry holes. The major discovery associated with

that round was the Brent field, which is on one of the blocks that Shell and Esso were forced to take in association with the one that they wished to buy. Oil does not always come out of the ground exactly where one expects it to and exploration is a risky business.
I urge the Government to consider the point made by the hon. Member for Edinburgh, Central—that the Government are giving companies a return on their profits that they have no obligation whatever to reinvest in the United Kingdom sector of the North sea. The hon. Member for Beaconsfield said that he hoped and believed that companies would reinvest. But the existing regime ensures that they do—not by direction or force but by making it so financially attractive that, by definition, they will orient their future activity back to the United Kingdom.
There are many bids in other parts of the world to attract activity away. There is much talk about the opportunities in places such as Kazakhstan and Vietnam. We need to ensure that we have a regime that encourages continuing investment here and takes into account the national interest, which requires us to maintain continuity of employment and expertise as well as the ability of British-based companies to develop and enhance that expertise. We need a regime that is designed to ensure that we maximise exploration and the discovery of new reserves and that the industry has a long-term stable future.
I am not persuaded that the changes were introduced for the good of the industry. I think that they were introduced because the Government believed that they needed money and needed it fast. In introducing them, the Government have knocked the confidence of the industry. They have damaged the drilling industry and have threatened the livelihoods of thousands of people in the north-east of Scotland. I urge the Minister to take those points extremely seriously and to recognise that, at the very least, transitional arrangements should be introduced to minimise the impact of the changes.
I am not happy when Government Departments say that they have deliberately calculated that a tax regime will cost 10,000 jobs, and when they apparently regard that as acceptable. That is destructive, and unnecessarily so. It should be possible to devise a regime that will secure the industry, the jobs and the future. The proposals as they stand do not do that, and I urge the Government to make sure that, when they have finished with them, they do.

Mr. Raymond S. Robertson: I do not intend to detain the Committee unduly but I feel that there are some points that need to be made.
Let me start by addressing the imbalanced view that the Committee must have of Professor Kemp's recent report. Professor Kemp has been widely but selectively quoted by Opposition Members, and it is only right that the Committee should see the other side of what Professor Kemp had to say. Given what has been said, the Committee will be surprised to learn that Professor Kemp actually accepts that the pre-Budget position was unsatisfactory and was in need of reform. He is quite clear about that. He also said that the new arrangements will substantially improve the profit margins on the larger existing fields which have until now been very low. Anyone who knows anything about the North sea will know that that is to be welcomed.
Professor Kemp also acknowledges that the changes will considerably improve the net present value return


from incremental investment on mature fields. Given the circumstances pertaining in the North sea, that is vital. He further acknowledges that the changes will give significant cash flow benefits to larger new oil fields. As we have discovered in recent weeks and with recent announcements, the days of finding major strikes in the North sea are far from over.
The hon. Member for Edinburgh, Central (Mr. Darling) was quick to quote directly from Professor Kemp's report in what was probably one of the classic selective quotations of all time. What the hon. Gentleman did not do was to read out the next two sentences, which put a wholly different complexion on the matter. Let me read out the whole paragraph, which the hon. Gentleman refused to do. Professor Kemp said:
The presence of only one simple fiscal instrument applied to new petroleum exploitation activities in the form of a corporate income tax at 33 per cent. is quite unique among major petroleum producing provinces. It must constitute a significant attraction.
That last was the sentence that the hon. Member for Edinburgh, Central refused to quote. Professor Kemp continued:
The level of take is certainly low by international standards.
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I concede that Professor Kemp had some criticisms to make of the Government's arrangements but they must be seen in their proper context and must not be taken in isolation—which Opposition Members were keen to do. Professor Kemp is critical in his assessment of the impact on exploration but, as my hon. Friend the Member for Beaconsfield (Mr. Smith) said, Professor Kemp's assessment only considers prospects up to 50 million barrels in size, in respect of which petroleum revenue tax is not paid anyway. He leaves out completely the benefit of the abolition of PRT for larger discoveries. That is a significant omission on his part.
The Opposition have been quick to go to all sorts of independent analysts to find quotations to back up their case. I, too, can do that. Norman Smith of Smith Rea Energy Associates has gone on record as saying:
The Chancellor has provided the majors with more of the funds that they need to tackle the frontiers, while at the same time making re-investment in production in the United Kingdom more attractive relative to foreign areas.
It is no use bandying quotations about: we can each find one to prove whatever we want to prove.

Mr. Darling: Will the hon. Gentleman give way?

Mr. Robertson: No. I listened to the hon. Gentleman without interrupting; perhaps he will do me the same courtesy.
The changes should be supported. The increased cash flow that will come from them will assist funding of significant—

Mr. Ernie Ross: On a point of order, Mr. Morris. Is it in order for an hon. Member to refer to and specifically quote another hon. Member and not give way when that second hon. Member seeks to intervene?

The Chairman of Ways and Means (Mr. Michael Morris): That is entirely a matter of judgment for the hon. Member in question.

Mr. Robertson: The changes should be supported because the increased cash flow that will come from them will assist funding of significant additional North sea activity, and that cannot be denied. The life of the existing fields will also be extended. More oil and gas will be recovered than would have been the case; that also cannot be denied. The changes will allow for new fields and discoveries to be developed far earlier and far more quickly than would previously have been possible. The industry has up to 80 fields waiting to be developed. When jobs are being considered, the jobs that will be created from the development of those fields must be taken into consideration as well.
It has been said that exploration will be affected. It will be affected but it will not be as adversely affected as claimed. The Budget changes leave untouched a signficant amount of exploration activity. Moreover, there is still relief for exploration wells drilled within 5 km of an existing PRT paying field, giving added incentive and added encouragement for greater exploitation of resources which we know are already there.
The proposals—

Mr. Robert Hughes: Will the hon. Gentleman be quite specific and answer yes or no: is he saying that he believes that no change whatever is required in the Chancellor's changes and that he will support them irrespective of the job losses in his own constituency?

Mr. Robertson: As I have tried to point out, I think that the proposals are in the best long-term interests of the North sea. If the hon. Member for Aberdeen, North (Mr. Hughes) can wait until the end of my remarks, he will discover how I intend to vote this evening.
The proposals have had a bad press; there is no doubt about that. Despite what has been said here and elsewhere, I believe that they have stood up quite well to the intense scrutiny to which they have been subjected. Just as I could not support moves at the beginning of the year to encourage the Government to dig for uneconomic coal, I cannot now encourage them to help companies to drill for uneconomic oil. There is no sense in subsidising oil companies to drill merely for the sake of their own tax bill. With companies representing two thirds—66 per cent.—of past and future capital expenditure in the North sea firmly behind them, the proposals are obviously in the long-term interests of the North sea oil and gas industry. The changes move us from a low-risk, low-reward North sea to a high-risk, high-reward North sea and, in reply to the hon. Member for Aberdeen, North, I have no hesitation whatever in recommending them to the House.

Mr. Hoon: Clause 183 would reduce petroleum revenue tax on the operation of existing oilfields and abolish it on new fields. Therefore, it would abolish the tax relief that was available for the cost of exploration and appraisal on those new fields with effect from 16 March 1993. What is the Government's intention? Clearly, they want to raise revenue to fill the gap in public sector finances. Sadly, that seems to be the only consideration that they have taken into account. Unfortunately, they seem to have ignored the wider effects of their decision. It is necessary to ask whether it makes sense to abandon what all hon. Members agree is a stable tax position—which was successful in attracting investment into the North sea in the late 1980s—at a time when the country's energy policy, so soon after the closure of so many collieries, is beset by uncertainty


and instability. It is extremely difficult to see any signs of a longer-term energy strategy in the Government's proposal.
If it is necessary to spell out the importance of the North sea to Britain's economy for the benefit of Conservative Members, it might be worth mentioning a number of statistics. The North sea has contributed more than £115 billion in tax revenue. We have had about 11 billion barrels of oil, and a further 7 billion barrels of oil are available. It is not surprising that estimates as to how much is still to be discovered vary, but they range from 4 billion barrels to as much as 25 billion barrels. That is a significant amount of oil, the recovery of which will help to boost the country's economy. Instead of importing oil, Britain could expect to remain self-sufficient in oil well into the next century. Those discoveries have made, and should continue to make, a crucial contribution to our balance of payments, provided the Government remain prepared to leave in place the existing tax arrangements. Will the Government put at risk that benefit to the country's economy for the sake of a short-term addition to their shaky finances?
Comments have been made about the likely reaction of oil companies to the change in the tax position proposed by the Government. On any view, it will make oil companies reluctant to invest the substantial sums of money that are required to explore and develop new oilfields. That must be the case especially in the North sea. Reference has been made to the maturity of the North sea field. That means almost inevitably that new exploration is likely to be in the more difficult and marginal areas. Given a choice between investment decisions in more marginal North sea oilfields and investment in other parts of the world where other incentives may be available to companies, multinational oil companies, which have no loyalty to the United Kingdom, will be tempted to go elsewhere.
Reliable estimates suggest that exploration activity might be cut by as much as a half. After all, many areas of the world—a number have already been mentioned—are competing for new oil development. Obviously, those areas will benefit from the employment implications of the changes that the Government have apparently all too readily conceded will be the result of their proposals.
The Treasury has accepted that as many as 10,000 jobs may be lost. Perhaps not surprisingly, others have suggested that the number of job losses may be greater than 10,000. The majority of those jobs will be lost in Scotland, but many people who are employed directly and indirectly in the oil industry throughout the United Kingdom will be adversely affected. That is hardly sensible at a time when the country is suffering from the effects of high unemployment.
I shall quote from a document that I received this morning from the Association of Service Sector Oil-Related Companies, which puts the case graphically:
the existing proposals"—
in the Budget—
will act as a disincentive to continued North sea exploration and result in substantial job losses across the sector, weaken their ability to expand and grow into international markets, drain technological innovation from the United Kingdom, and increase smaller companies' vulnerability to hostile takeover bids. As a consequence"—
this is the conclusion—
the United Kingdom economy as a whole will suffer.

That means that whatever oil is waiting to be discovered in the North sea will probably continue to wait until the opportunity is taken to develop new fields for the benefit of British consumers and, ultimately—this has been justified in terms of revenue raising—for the benefit of the British taxpayer.
The Chancellor and, indeed, the Financial Secretary have made much of justifying the change in the sense that the existing petroleum revenue tax system is costing the country money and subsidising exploration by oil companies. In one sense, that is true. We cannot argue against the figures that have been made available. However, the Chancellor and the Financial Secretary overlooked the fact that, in 1984–85, the United Kingdom raised about £12 billion in tax receipts from North sea oil. Tax receipts have obviously fallen because of lower levels of production as part of the recession and the fall in world oil prices.
By abandoning the present tax arrangements unilaterally in the way that the Government propose, they are abandoning the prospect of substantial tax relief in the future. They are effectively abandoning investment in the North sea in terms of gaining benefits today in extra tax revenue and forgoing the prospect of higher revenue later. By discouraging new investment, we will be dependent on the reduced levels of revenue that flow from fields already under development. We will be giving up for all time the revenue from new finds, which will not take place as a result of this change.
The Labour party believes that it is necessary to continue to support investment in the North sea and encourage exploration and development of new fields. In such circumstances, it cannot make sense to make a sudden arbitrary and short-term tax change. Even if the Government are determined to go ahead with the change in principle, surely it makes sense to consider our amendments which will allow transitional relief and the phasing-in of the proposals, otherwise we risk jeopardising Britain's employment prospects and the prospect of new exploration and development. As a result, we risk severely damaging our balance of payments position for the sake of a short-term contribution to the Government's finances. This is a panic measure introduced by a panic-stricken Government.

Mr. John Horam: I shall not detain the Committee for long. There has been general concern about the change announced in the Budget and the Committee should discuss it in the serious way that it is and in a fairly objective way. Like some of my colleagues, I want some reassurances from my hon. Friend the Financial Secretary during the debate.
The hon. Member for Edinburgh, Central (Mr. Darling) understated the case in some respects. Perhaps it is the modern Labour way—having indulged in wild excess for many years, ultra-moderation is the way to get the message across. I welcome that as a general political principle, but on this occasion the hon. Gentleman underplayed his case. The fact is that Britain is a world leader in oil and gas exploration technology. The hon. Gentleman did not make much of that point. The United States and Britain are the two world leaders in oil and gas exploration technology.
There are few areas of British industry in which we have the depth and extensiveness of knowledge and experience that we have in the oil industry. When we look at our


national advantages and our natural areas of competitiveness, we are spread rather thin—we are involved in many areas but not doing especially well in them. In the oil industry, we have an enormous depth of expertise and knowledge. We are using that expertise and knowledge not only to explore the North field but in other parts of the world—that point has already been made.
If we change the financial basis of our technological advantage, we must think carefully. It is a mistake to make dramatic changes of this sort. It is a mistake in principle to make dramatic taxation changes; I favour gradual changes in taxation in so far as they affect our industrial competitiveness. There is no doubt that the exploration effort in the North sea and elsewhere may well be affected by these changes, to Britain's disadvantage. There has been some dispute about that. Various figures have been bandied about the Chamber. The hon. Member for Ashfield (Mr. Hoon) and other hon. Members mentioned a figure of 50 per cent.—my hon. Friend the Member for Aberdeen, South (Mr. Robertson) disputed that.
What is my hon. Friend the Minister's estimate of the likely effects of the change in taxation? He may say that he cannot make a sensible estimate because he does not know exactly what the regime will be. However, I presume that the Treasury made an analysis before announcing the change. It must have made some assumptions about the likely effect on the industry of such a change, even before it had a chance to announce the change. What is my hon. Friend's feeling now about the likely effect on the exploration activity in the North sea as a result of the tax changes?
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As others have said, the reason for the tax changes is that we must have general regard to the level of public expenditure and our problems with the deficit. We must consider increasing revenue. In the case of the oil industry, in the current financial year we shall make a gift to the industry of about £200 million, having taken a large amount over the years. As one of my hon. Friends said, the current position should not last long. None the less, we should not give a seismic shock to the industry to deal with a tax handback to one industry which may not be typical of what will happen every year. Is this an extraordinary year? Are the current circumstances unique? Will the £200 million handback increase every year or does it reflect the circumstances of the moment?
I am not sure that it is sensible to deal with what may be a relatively short-term position in the way that the Government propose. I am aware that discussions are taking place between the industry and the Treasury. I welcome those discussions. It is a pity that they have had to take place post-Budget. The hon. Member for Edinburgh, Central said that he accepted that Budget purdah had to operate and that it was inevitable that such measures were not properly discussed with the energy department of the Department of Trade and Industry before they were announced.
I would be rather more radical than the hon. Member for Edinburgh, Central. It is proper in any sensible Government that there should be discussion with the relevant Department and especially the DTI about such changes in taxation. One of the faults of our Government has been that, as a result of the nature of government, they

have not been able to arrange sensible, discrete discussions with the sponsoring Department before Budget changes of this character are made. That is a pity. I should like to see some changes made in that direction in future.
I do not go along with the argument that we should make such a change for short-term, tax-raising reasons. The oil industry is too important to subject it to such considerations. I want to hear from my hon. Friend the Minister that he has considered the position seriously, seen that there is a problem in the shape of the tax take from the industry, which has now become a tax give, and that he is prepared to re-examine the position. I want to hear that he has some objective and clear-cut ideas about the nature of the tax regime that he seeks to impose and that the change has been made, despite appearances to the contrary, for serious and objective reasons.
I want to hear from my hon. Friend the Minister that we can put in place a regime, the general character of which will last as long as the previous regime lasted. If we are dealing with a change that will help the industry and protect our acknowledged lead in the technology of oil and gas exploration, I shall support the Government because we shall be making the change for sensible tax-planning reasons. But I cannot support industrial competitiveness being damaged for short-term tax reasons.

Mr. John McAllion: Clause 183 abolishes petroleum revenue tax on oil and gas fields which are given development consent after 14 March this year. But it is just one element in a radically new tax regime for the North sea which has already been described by many experts and analysts as being designed mainly to put money into the coffers of the Treasury. At the same time, and as a direct result of the Government's short-term obsession with boosting the Treasury take, the new tax regime is likely to destroy future exploration programmes in the North sea.
The new tax regime will effectively shorten the economic life of the North sea. It will certainly cost thousands of exploration jobs in the North sea. It will seriously damage the oil service sector of the Scottish economy. In the long term, it is also likely to have serious implications for the new safety regime in the North sea which was introduced after the Piper Alpha tragedy some years ago.
Clause 183 is extremely important. The amendments which have been tabled by my right hon. and hon. Friends are designed to put off the evil day when the new regime and the damaging consequences which will flow from it come to pass. The amendments will certainly be supported by Opposition Members, but they should also be supported by Conservative Members, in particular those who represent constituencies in Scotland, and especially the north-east of Scotland, as do the hon. Members for Aberdeen, South (Mr. Robertson) and for Kincardine and Deeside (Mr. Kynoch).
I am afraid that, tragically, we are likely to come up against the phenomenon that we witnessed last night in the debate on value added tax on domestic fuel and power. Conservative Members will be whipped through the Lobbies in support of proposals which are neither in their interests nor in the interests of their constituents. They will vote for the proposal to defend a discredited and bankrupt Government and, even more questionably, to defend their squalid little careers within that Government in the years ahead.
The Government will present what they are doing in a different light. They will package it in glowing phrases about sweeping away outdated, anachronistic and old-fashioned tax regimes which are no longer appropriate to the North sea. They will talk about introducing major reforms which will provide the industry with a stable framework for its future development. They will even trot out their supporters among the big oil companies to give some industry credibility to what they seek to do in the North sea. Such supporters include the chief executive of BP, Mr. David Simon, who has already welcomed the changes. He has forecast that investment in the North sea will be directly stimulated as a result of the changes; indeed, he has predicted even bigger profits for his company and other companies in the North sea.
I am sure that Mr. Simon is sincere in what he says about the changes. I can quote directly what he said in The Press and Journal immediately after the Budget proposals were announced. He said:
I believe these reforms will encourage development of larger discoveries like west of Shetland, where a higher rate of return is needed to balance the increased risks and costs of operating in the more demanding deep-water environment.
That is all very fair, but Mr. Simon's company, BP', made the spectacular oil find in the west of Shetland last autumn and will develop that field. His company, BP, will pay the lower rate of petroleum revenue tax on oil produced from that field and, indeed, other fields. His company, BP, will now be able to make even greater profits than it has already made in the North sea this year.
I have here a quote from The Press and Journal of 7 May which announced a "BP profits gush". It said:
BP stormed back into the black in the first quarter of the year … The oil giant saw net profits soar to £325 million compared with a loss in the corresponding period last year of £61 million.
So it is good times for BP and probably even better times ahead with the increased profits that it is likely to accrue from the changes in the North sea tax regime in relation to the discovery that it has made west of Shetland.
If the proposed new tax regime had been in place one or two years ago, before BP and Mr. Simon were given development consent west of Shetland, would they be so enthusiastic about it? If, before BP explored west of Shetland, it had faced the prospect of not being able to offset its exploration and appraisal costs against its existing liability for PRT, and seeing those costs quadruple at a stroke as a direct result, would it still have gone ahead with that exploration? I think that the answer is no. In fact, the full headline from The Press and Journal of 7 March reads:
Cost cutting helps BP profits gush
It is because of such cost cutting that BP has been able to get itself in the black. If it is faced with the prospect of exploration costs quadrupling overnight, the first thing it will cut will he exploration itself, because that prejudices its chances of making profits.
Under the new tax regime there will be winners and losers, but the Opposition fear that there will be far more losers than winners. Professor Alex Kemp of Aberdeen university, who has already been quoted several times today, says that he expects there to be a "host of losers" and "some winners"—he does not expect many. Those winners are likely to be the heavyweights, the major oil companies such as BP and Shell.
The losers will include the oil service companies, particularly those involved in drilling and exploration.

They will include the smaller oil companies and the 14th oil and gas round that is about to be offered by the Department of Trade and Industry. They will include the thousands of workers who will lose their jobs and their families, who are dependent on their income. They will include the taxpayers, who will be expected to fork out up to £100 million in benefit to try to keep such workers out of proper employment. The losers will also include the Scottish-based service sector that supplies equipment for the North sea, such as mud pumps and drilling bits. Among those losers will be the many people who will remain working in the North sea for companies such as BP and other large companies.
It is important to remember how the new tax regime was established. The Chancellor was faced with a desperately bad public sector deficit and he cast about for the means either to cut Government expenditure or to boost Government revenue. At the same time, he also discovered that under the existing PRT regime, the cost to the Exchequer in 1991–92 was £200 million. The right hon. Gentleman was therefore determined to turn that situation around by scrapping all the allowances against PRT and thereby securing for the Exchequer, according to his estimation, £300 million in 1994–95 and £400 million in 1995–96. That turnaround is worth almost £1 billion. That is what the Chancellor expects to accrue from the changes. He tried to anticipate any backlash from the oil majors by buying them off with a reduction in their liabilities under PRT from 75 per cent. to 50 per cent. That must represent a saving of hundreds of millions of pounds for those companies.
In just two years, well in excess of £1 billion will be seized from the North sea oil economy by the Government and by the oil companies as a result of the PRT changes. That money must come from somewhere. It will be saved by companies undertaking less exploration and offering fewer jobs. Not only will that have damaging economic implications, but it will have serious implications for the North sea safety regime.
It is nearly five years since the Piper Alpha tragedy in the North sea in which 167 lives were lost. I have absolutely no doubt that the train of events that led directly to that tragedy began in 1986 with the then collapse in the oil price. That collapse cut the profits of oil companies and led directly to cuts in care and maintenance programmes and a decline in the priority that was accorded to safety. Here we are again, in 1993, discussing changes under which the Government and the big oil companies, working together, will take more than £1 billion out of the North sea economy. That may have serious, damaging implications for the current safety regime.
I know that the new safety case regime is in place following the Cullen inquiry. Reports and legislation are never sufficient to guarantee the highest safety standards in the North sea. To guarantee those standards, we must create the financial regime that is conducive to such standards. Because of the changes to PRT, however, profits will be squeezed because exploration costs will begin to rise. The contracts for drilling will become even more fiercely competitive than they are now and the temptation will inevitably be to make savings from wherever that is possible. I suspect that some companies will now try to get away with making savings on safety.
Blowout is the newspaper for offshore workers and the offshore industry liaison committee, the OILC. The June


1992 edition was published a month after the new safety regime was introduced and it provided information about one of the more recent tragedies in the North sea, the Cormorant Alpha helicopter tragedy, in which 11 men lost their lives. It provided proof that one of the victims had previously been disciplined
for refusing to board a helicopter in circumstances similar to those on the night of March 14 when 11 men died.
It also noted:

The pilot of the ill-fated Super Puma was not told of a serious weather hazard in the area.
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When Select Committees and inquiries, such as that headed by Cullen, take evidence on safety, the oil companies and their contractors never admit that that type of thing goes on. Similarly, they never admit that men who complain about lapses in the safety regime are victimised and blacklisted. That practice goes on to this very day in the North sea oil industry and hon. Members had better believe that. It goes on because of financial pressures, because companies are forced to cut costs again and again. The new tax regime is trying to make the same thing happen.
Someone must pay the price for all the money that will be taken from the North sea oil economy, and I suspect that it will he the workers, who will have to work in even worse, less safe conditions. That is the bottom line that we must take on board when we vote. That is why those Conservative Members who represent workers in the North sea must consider the safety of their constituents before they vote for a tax regime that will put those people's safety at even more risk in the years ahead.
I shall certainly check the voting list in Hansard tomorrow to see whether the hon. Members for Aberdeen, South and for Kincardine and Deeside and the other Scottish Tories voted for their constituents. They let the Scottish people down last night on VAT and they had better not let down the oil workers tonight.

Mr. George Kynoch: As has already been said, I represent the employees and staff of many of the oil companies, be they large, medium-sized or small. I also represent those who work for indigenous industries that have, over the years, become oil-related service companies and those who work for drilling and supply companies.
After the Budget on 16 March, I obviously received many letters on the subject of the proposed changes to the PRT. The response was mixed. I spent the day after the Budget talking to representatives of a medium-sized oil company and debating with them why a move to a low-tax, low-allowance regime was infinitely superior to a high-tax, high-allowance regime. I suggested that those changes would bring those companies into line with the rest of British industry, because, by allowing them to keep more of the profits that they make from their production or finds, they can reinvest in their companies to produce further profit in the future.
After a period of deep reflection, many of the oil companies that had expressed initial concerns about the tax change, perhaps having latched on to the allowance side, then completed their highly complex calculations—whatever any hon. Member may say, the PRT is a highly complex tax—and revised their opinion. They accepted

that, in the medium to long term, the tax changes were significantly beneficial to them, their employees, the United Kingdom and the North sea oil industry.
It is important to stress that those benefits will be apparent in the medium and long term, however, because my hon. Friend the Financial Secretary is aware of my deep concern about the transition period. As the arrangements stand, many of the incentives that the tax changes offer, will not come through for 18 months or two years at the earliest. I quote from this morning's Aberdeen Press and Journal:
BP £2 million booster is oil jobs bonanza.
It may well be as a result of these tax changes that that has been brought forward. It probably is. But I must emphasise that the work will not begin until early in 1995 and we are now in 1993. My hon. Friend the Financial Secretary has already said, on Second Reading, that he wishes to minimise any dislocation in the industry, and I know that he recognises that there may be dislocation. I know that the oil companies share his wish to see a fiscal situation that satisfies the Treasury and becomes tax raising rather than a tax cash curb. I am, therefore, exceedingly grateful to my hon. Friend for receiving the deputations that I have taken to him from the north-east of Scotland, representing more than 60,000 employees in the North sea, who accept the medium to long-term benefit of the change, but who see that there will be a significant dislocation to the industry in the immediate future.
I am equally well aware of the Financial Secretary's concern that by building a transition period without controls one runs the risk of overheating the drilling and exploration side and putting up drilling costs. It is a concern shared by the industry: it is in no one's interest for that to happen So I know that the industry is very keen to assist my hon. Friend's officials to work out a satisfactory capping proposal that will be fair to the Treasury, fair to industry and fair to the future of the North sea.
I share the concern of my hon. Friend the Member for Stroud (Mr. Knapman) that the Treasury should seriously consider this problem, but I must quote—again, I am afraid, selectively—from Professor Kemp. I will not go into the details of his acceptance of the inevitability of the tax changes and whether they affect small companies or large, but the one point that he clearly makes in his summary is this:
The abruptness of the implementation of the budget proposals will create disruption in the exploration sector of the industry. It will also have an adverse effect on investor confidence in this sector. Exploration companies, particularly the small ones"—
many of those are represented in my constituency—
have based their E and A programmes on the basis of receiving full PRT relief for the expenditures. They can react in the short term only by sharply cutting their E and A activities. The result will be highly disruptive for the drilling contracting and supplies industry which are already suffering from trading difficulties. The medium term exploration effort of the smaller companies in the United Kingdom CS could also he put in jeopardy.
I know that that is only one opinion, and I know that British Petroleum and Shell have put an opposite opinion —they believe that there will be minimal dislocation and that the proposals should remain intact. Bearing in mind that I have in my constituency employees represented by BP and Shell, that puts me in a rather difficult position because they take the view that, in the short term as well as in the long, there will be no dislocation, but I believe that there will he a dislocation and that if my hon. Friend


the Financial Secretary looks seriously at a fiscally neutral adjustment to the transitional arrangements, it may well smooth the transition to what I believe will, in the medium to long term, be a better tax regime for all concerned.

Mr. James Wallace: The hon. Gentleman has quoted, and indicated from his own discussions with the oil companies, various views. Is he in a position to inform the House what has happened since the Budget and what companies have done with regard to plans that they may already have had for exploration and appraisal?

Mr. Kynoch: As I am sure the hon. Gentleman is aware, what has happened depends on which company one looks at. There has been a fairly mixed response. The hon. Member for Edinburgh, Central (Mr. Darling) and I attended a conference of oil companies at the weekend where we heard a very mixed response. Some contracts have been postponed, but other projects have been brought forward. The situation is not cut and dried. I believe, however, that many of the projects that have been conveniently announced at this time as being brought forward will not have their full effect on employment until 1995. There are small to medium-sized service companies in my constituency that will be put in jeopardy by the delay in the making of decisions and in the awarding of contracts. It gives me great concern.
However, the clause that we are discussing is not the one on which I have had representations for change. The Financial Secretary was good enough to hear the representations from my many constituents and has been good enough to allow his officials to continue discussions with representatives of the industry to try to determine whether the dislocation can be further minimised. I am sure that he knows that the appropriate clause—-either clause 184 or clause 186—is most likely to be discussed in Committee upstairs.
I therefore conclude by urging my hon. Friend, while thanking him for having seen and considered these representations, to make sure that he understands the implications for my constituency, for the north-east of Scotland and for the United Kingdom Exchequer in the medium term.

Mr. Robert Hughes: rose—

Mr. Kynoch: I hope very much that by the time the Bill is considered in Committee upstairs the negotiations and discussions that which have gone on—

Mr. Robert Hughes: rose—

Mr. Kynoch: —will have brought to fruition a satisfactory result for the north-east of Scotland.

Mr. Salmond: I could have told the hon. Member for Aberdeen, North (Mr. Hughes) that the hon. Member for Kincardine and Deeside (Mr. Kynoch) would not give way because it might have punctured the alibi that he constructed for the latter part of his speech.
I would say to the hon. Member for Kincardine and Deeside that we are discussing the principle in clause 183. If the hon. Member really wants to see transitional relief, he need not go on pleading with his hon. Friend on the Front Bench; he just needs to join us in the Lobby to secure it.
There was an interesting contrast between the hon. Member for Kincardine and Deeside and his hon. Friend

the Member for Aberdeen, South (Mr. Robertson). It is some sort of double act that we are seeing here, the nice copper and the nasty one. The hon. Member for Aberdeen, South works them up and then the hon. Member for Kincardine and Deeside is meant to soothe them down. However, with their voting behaviour in the space of 24 hours, they are running a severe risk. Yesterday, they voted to put value added tax on fuel, voting against the wishes of about 99 per cent. of their constituents; tonight, it seems, they will vote to put thousands of their constituents out of work and, later this evening, if I read the signs aright, they will vote to decimate our fishing industry. That is a triple whammie delivered by these two hon. Gentlemen which people in the north-east of Scotland will find very hard to understand and will take a long time to forget.
We are debating clause 183 but also the principle of the tax shift, and I want to speak, in particular, about amendment No. 40 in the names of my hon. Friends and myself and supported by Liberal Democrat Members in which we are trying to make some positive suggestions as to how transitional relief may be effected. We do not want to do it by means of the fiscally neutral position that the Treasury has sought—that if one gives with one hand and takes away with the other, it will be satisfactory for the Treasury. One will never reach a consensus in the industry by selling some companies that they will lose prospective revenue in order to benefit others. That is not possible. In amendment No. 40 we propose that for a period a company should continue to be able to opt to receive exploration and appraisal relief, at a certain percentage and subject to a ceiling in the case of each individual company, to remove any possibility of an excess in the claim of any one company. I was pleased that we received from the Leader of the House last Thursday an undertaking that if any of this evening's amendments were carried he would see that the consequential amendments which might he necessary were brought forward in Committee upstairs. The hon. Member for Kincardine and Deeside need have no fear about waiting for the Committee. All that he has to do is join us in the Division Lobby tonight.
There is a case for changing the tax regime in any oil province. The usual time to do it is when oil prices are riding high, and the industry is subject to overheating. Then, there can be a logical case for cooling down activity in the industry and at the same time getting more revenue for the Government. It is more questionable to do it when the industry, as at present, is already in a state of substantial over-capacity.
6.30 pm
There is a case for a low-taxation regime in the North sea. It is obvious that companies would like a reduction in their marginal rate of taxation. However, it is disingenuous for Ministers to quote major companies in the oil industry—Shell, BP and Mobil—all of which will benefit to the tune of many millions, perhaps even hundreds of millions, of pounds from the tax changes, as if that were some sort of independent assessment of the overall impact of the tax changes.
The story in the north-east of Scotland is that John Morgan of BP receives £10 million for every press conference that he gives. It is a sort of payment by results scheme. The more that BP praises the Government's taxation changes, the more that it realises how much it will



benefit from them. I am not attacking senior executives in BP who say what a good thing it is that the tax change will bring the company lots of money. That is an understandable position for any company facing such a tax change. However, the Government have to understand that what is good for BP is not necessarily good for the whole of the oil industry. It is the Government's duty, sadly neglected, to take an overall view and see what overall balance of effects will result from their taxation changes.
If drilling costs in the North sea are quadrupled—that will be the effect of the tax changes—that will have a substantial impact on the drilling sector and will cost a substantial number of jobs. Furthermore, because of the suddenness of the change, it will cause substantial dislocation, because many companies will face sudden cancellations of contracts.
We have been talking in general terms and about big companies. I want to read briefly to the Committee a letter that I received from Steve Lee, the manager of the advanced technology centre of Core Laboratories in Aberdeen. It is a subsidiary of a major company, and it employs 100 people in Aberdeen. Mr. Lee wrote to me on 30 April saying:
Since I last wrote, the confidence of the oil industry has continued to decrease, which has resulted in exploration/ appraisal wells being deferred. The consequence of this to my company has been a substantial decrease/loss of orders. This in turn led to 16 members of Core Laboratories staff being made redundant on April 27th, 1993.
A reduction of 16 per cent. of the workforce is considerable. Unless and until there is a rethink on PRT there is every likelihood of further layoffs in the coming months. I suggest consultation with the WHOLE of the oil industry would be beneficial to both the Treasury and the oil operators.
Those are the effects on real companies and people in the north-east of Scotland.
We are debating the overall effect, the net effect, of the changes. Clearly, some companies will benefit and some will lose. However, as has been pointed in some of the correspondence in the newspapers, it is a fairly simple matter for an oil company to adjust its activities so as to become a major gainer from the tax changes. If one wants to be a winner, all that one has to do is up sticks and start exploring in other oil provinces elsewhere. Those who do not explore in the North sea will not be subject to the quadrupling of the price of exploration and appraisal.
We have heard from certain organisations, including Grampian region, the chamber of commerce and the offshore industry liaison committee. They represent local authorities, many of the employers in the region and many of the workers in the industry. None of the organisations has an axe to grind. All of them have workers working for winners and those working for losers. All of them have taken an overall view of what the net effect of the tax changes will be in their area and in the oil industry as a whole. All of them have come to the conclusion that the overall effect will be strongly negative and that thousands of jobs are at stake because of the tax changes that the Government are proposing.
As has been said a number of times, we are grateful for the fact that Grampian region commissioned a report from AUDEC Consultants and Professor Kemp's team at Aberdeen university. Conservative Members have claimed that Professor Kemp has been quoted selectively. They have said that Opposition Members are only quoting the

adverse remarks in the report and forgetting to mention the positive things that Professor Kemp had to say about the oil tax changes.
It is obvious that an academic, and in particular an informed academic like Professor Kemp, when he is looking at an overall tax change that involves reductions in taxation in certain sectors in certain areas, will say positive things about the effect of the reductions. However, it is also true that the basis of the report was the desire to come to a conclusion about what the overall effect would be on jobs in the oil industry. There is no doubt about that. The report summary says:
The Scottish level employment fall forecast ranges between 7,500 to 11,250. It should be appreciated that this does allow for the retention of some jobs as a result of incremental investment.
At Grampian Regional level, the jobs lost could be 4,000 to 6,000. Greater jobs losses are quite possible.
Throughout the report, Professor Kemp erred on the side of caution in every estimate. For example, those of us who have been involved in oil economics know that, for the oil industry, it is usual to use a high multiplier effect in estimating the overall consequences of job reductions. In the oil industry one usually takes a multiplier of 1·78. So as not to exaggerate the consequences of the tax changes, Professor Kemp chose the more conventional multiplier used for the rest of the industry, that of 1·25. If he and his team had wanted to exaggerate the effect of the tax changes, they could, quite defensibly, have increased the figures substantially. Wherever they had to make a choice, they erred on the side of caution.
Hon. Members on both sides of the House should accept that we are looking at a potential impact of around 10,000 job losses if the tax changes go through unaltered. I believe—I think that many hon. Members will also believe—that 10,000 jobs is too great a number to be so casually disregarded by the Government.
Did the Government know that that would be the impact before they made the proposal? We have to look at the now renowned quotation in The Press and Journal, appropriately enough from an article that appeared on April fool's day, immediately after the Budget, which used a briefing that was attributed to a Treasury official. The famous quotation "from a senior advisor" was:
For 10,000 (job losses) we are securing £400–£500 million a year in taxation.
It seems that the Government and the Treasury engaged in a calculation and thought that they could secure hundreds and millions of pounds' worth of additional taxation and, if there was a cost of 10,000 jobs, primarily in the north-east of Scotland, that was just too bad and it was a "price well worth paying".
I see a puzzled look on the face of the Minister for Energy. That is not unknown. Over recent weeks he has often looked puzzled and confused. As he is here and giving us the benefit of his facial expressions, even if he is not giving us the benefit of a contribution to the debate, could he answer one of the questions of the debate? Were he and his Department consulted before the Treasury put forward the taxation changes? Did he give advice that was disregarded or was he disregarded in that his advice was not even asked for?
I am happy to allow the Minister to intervene to answer, as the oil industry would like to have that question answered. I see that he is shaking his head. Does that mean that the Department was not consulted or that he is frightened to intervene to confirm what many Opposition


Members believe? We believe that the oil industry and the energy sector are so disregarded by the Government that the Minister with responsibility for them is not even consulted when serious tax changes are being considered with an impact on 10,000 or more jobs, primarily in the north-east of Scotland.

The Minister for Energy (Mr. Tim Eggar): The hon. Gentleman claims to be interested in these matters. May I refer him to the answer to a similar question that my right hon. Friend the President of the Board of Trade gave the Select Committee?

Mr. Salmond: We should like to know what it was. Was the Minister consulted or not? We can all consult the record afterwards, but I should like an answer during the debate as many Conservative Members are wondering how to vote this evening. Surely the Minister must want to tell the Committee whether he was consulted about the tax changes in the run up to the Budget proposals. I wonder whether the silence from the Treasury Bench tells us everything. I shall not even ask whether the Scottish Office was consulted as we can safely assume that no one would bother to do that. Scottish Office Ministers are not here this evening just in case they should be asked that question.
It is unfortunate that much of the debate outside the Chamber has been conducted in terms of the cash flow of individual oil companies—which companies would benefit and which would lose. It should not be a matter of the accounting position of individual oil companies but a flesh and blood issue affecting 10,000 or more families and the infrastructure of the oil industry in north-east Scotland.
I have heard the Treasury Minister, in many radio interviews, deriding those who question the wisdom of the oil changes by arguing that we want to give some advantage to the international oil industry. What greater advantage could be given to some of the largest companies in the international oil industry, at the expense of jobs and the industrial infrastructure of our oil industry, than that given under the Government's proposals?
I am concerned about the future after the taxation changes. One argument that the Government have put forward is that it will make the North sea a more attractive province, but that argument holds only if people believe that, if oil prices were to increase rapidly at some point in the future, there would be only a corporation tax regime in place.
No one in the oil industry to whom I have spoken, whether they are for or against the changes, believes that any Government of whatever political colour would leave a taxation regime in place which meant that only corporation tax would be charged on new discoveries if, once again, there were a major escalation in oil prices. The Government have introduced instability into a tax regime having previously claimed that, above all, the United Kingdom tax regime offered stability to the industry. They have undermined their strongest argument in favour of the United Kingdom tax regime.
It is obvious that the taxation changes will be bad for the industry. Clearly, any change that is anticipated to give substantial benefits to the Treasury in net financial terms will be detrimental for the industry.
The hon. Member for Dundee, East (Mr. McAllion) was right to say that at the end of the day someone will have to cough up for the additional revenue that the Treasury will expect from the changes. It will not be the

international oil companies; some will lose and some will gain and the ones that lose will probably explore elsewhere. I suspect that there will be a cutback and a squeeze on the service companies and that many of the effects will be felt by the workers in the industry. One consequence of a financial squeeze, as we saw in the mid-1980s, is a reduction in maintenance and work force conditions.
The exploration sector will certainly have to become more competitive, but, once again, many workers in the North sea will face a hostile environment in terms of their conditions.
In conclusion, the changes in PRT are often described as resembling the Schleswig-Holstein question in European history in that only four people understand it: one is mad, and that certainly covers the Treasury Bench, one is dead, and in political terms that would cover the Chancellor, I have forgotten the third and the fourth is Professor Alex Kemp of Aberdeen university.
Professor Kemp was the adviser to the former Energy Select Committee. In his much-quoted report, he put forward the strongest possible argument for introducing some form of transitional relief to provide protection and attempt to save the jobs that are now at risk in north-east Scotland and elsewhere. Amendment No. 40 encapsulates Professor Kemp's recommendation and I certainly commend it to both sides of the Committee this evening.

Mr. Ernie Ross: Our debates last night and tonight have demonstrated to those who watch and listen to our proceedings, who read our debates and who are affected by the policies we are discussing the Government's ability to unite diverse groups across political and economic backgrounds.
When my hon. Friend the Member for Midlothian (Mr. Clarke) catches your eye, Mr. Morris, I am sure that he will remind you that it was not long ago that the Government attempted to make the same hash of the coal industry. They consulted no one, but simply produced proposals that they considered to be in the best interests of the Government and the Coal Board. They did not worry about Britain's long-term energy needs or the impact on workers in the industry.
My hon. Friend the Member for Dundee, East (Mr. McAllion) reminded the Committee that, had there been an Energy Select Committee, it could have considered these matters. It is significant that the Government chose to introduce these changes in taxation in the knowledge that there was no Select Committee to monitor the month-by-month impact on north-east Scotland and the rest of the United Kingdom. The changes to the PRT will impact on employment, but not only in the north-east of Scotland. It is quite likely that some 3,000 jobs in the southern sector will be lost as a direct result of those changes.
It is also clear that those who will benefit most do not need the benefits as much as we need to continue to encourage exploration and appraisal in our oil industry. Companies such as BP and Shell do not need long-term encouragement that will accrue to them as much as the exploration and appraisal companies need it if we are to continue to benefit from the North sea.
What are the likely effects of the decision on the PRT? Certainly the cost of drilling a well will be increased four


times as a result of the proposed changes, and that will affect the number of wells to be drilled during 1993–94. It will follow a reduction in drilling and exploration in 1991–92.
As hon. Members on both sides of the House have conceded, the number of jobs that will be lost is not quite clear. It ranges between 6,000 and, depending on whose estimates we take, 20,000 to 30,000. Even the Treasury estimates that about 10,000 jobs will be lost. It will not just be jobs that are lost but, as other hon. Members have said, the expertise and knowledge will also be lost, and once it is gone, as we discovered to our cost, particularly in the manufacturing sector, it is difficult to replace.
We have also heard the Government estimates that the net benefit to the Treasury will be about £700 million in a full year. Others have argued with that figure, and I should be interested to hear from the Financial Secretary exactly what he thinks about an estimate of £200 million or £300 million rather than the £700 million suggested by the Treasury.

The Financial Secretary to the Treasury (Mr. Stephen Dorrell): The hon. Gentleman need not detain the Committee long on that issue, because the Treasury's estimate of the net effect of the changes to PRT is set out in the Red Book; he will find that the figures quoted there are £300 million in 1994–95 and £400 million in 1995–96.

Mr. Ross: The Financial Secretary must admit that other financial experts disagree with those figures. Only time will tell who is right. Given the Government's record on finance, I think people are more likely to believe estimates other than those given by the Financial Secretary.
The real impact will be felt by those directly affected. The cost to this country—if we accept the estimate of 10,000 unemployed—will be approximately £90 million to £100 million in lost revenue. My hon. Friend the Member for Aberdeen, North (Mr. Hughes) asked the Financial Secretary how, why and where the discussions that led the Financial Secretary to recommend to the Cabinet that the Chancellor should proceed had taken place. The Financial Secretary helpfully said that there had been on-going discussions over three and a half years. As my hon. Friend the Member for Aberdeen, North said, whoever the discussions took place with, they certainly never took place with the workers in the industry and the industry itself—the Financial Secretary said that he would have needed a crystal ball to decide or second guess the likely changes in the Chancellor's Budget.
As we now know, the Department of Energy was not involved in the discussions; I am not surprised at that. Neither was the Department of Employment, which will have to find jobs for the individuals who are liable to be made redundant as a result of the changes. The hon. Member for Stirling (Mr. Forsyth), the Minister of State, Department of Employment, appeared before the Select Committee on 14 April, and I asked him whether his Department would be responsible for finding employment for those made redundant as a direct consequence of the changes in taxation and whether his Secretary of State had been involved in discussions with the Treasury. He said no, there had been no discussion whatsoever.
Although the Government will have to find some project or scheme which will provide training, reeducation and jobs for those 10,000 people, the Treasury did not consult the Department of Employment, even though it will be given the responsibility. There was no prior discussion with the Department of Energy, with the industry, with the workers in the industry or with the Department of Employment. The Financial Secretary should tell us exactly who these discussions took place with.
My hon. Friends have rightly raised the spectre of the lost jobs in the north-east of Scotland, and those who will lose their jobs should be conscious that the hon. Member for Kincardine and Deeside (Mr. Kynoch) and the hon. Member for Aberdeen, South (Mr. Robertson) are likely to support these measures. They should be aware that their unemployment, according to the hon. Member for Kincardine and Deeside, will be a "positive response" to pressure from MPs for changes in the petroleum revenue tax which caused the unemployment. I hope it helps the unemployed, as they wend their way to the unemployment exchange, to know that a positive response made them unemployed. I am sure that there will be many people in those areas knocking on the doors of those two hon. Members, demanding that they find such people suitable alternative employment after the changes in petroleum revenue tax take effect.
My union, Manufacturing Science and Finance—which is the largest union in the oil industry—has other concerns. As hon. Members have suggested, when licences were awarded, the oil companies agreed to complete a given number of exploration wells. Those commitment wells are having to be drilled without the planned tax relief, so there will clearly be a loss to those companies. The DTI is insisting that those drilling commitments are met, and this will have a further impact on the ability of those companies to maintain employment.
It will certainly not be in the long-term interests of the country that we will have not a healthy industry, but an industry buffeted not only by economic recession—which, we are told, is not just here in this country but worldwide—but also by the impact of these changes in the exploration and appraisal tax proposals.
The White Paper on energy relied heavily on the expectation that the oil and gas sector would continue to prosper. This decision by the Treasury destroys any belief in a long-term plan for the industry. The international players in the oil business are looking for a stable fiscal background for investment. In one simple decision, the Chancellor of the Exchequer has destroyed Britain's reputation and, more importantly, shown that the Government do not understand the long-term nature of the oil industry.
The decision also sets a precedent for retrospective taxation. The commitment wells will be held to by the Department of Trade and Industry, and that will lead to further complications.
One point that has come out of this short debate is that, when such huge investments are involved, any change decided by the Government should be discussed in advance with those involved. The problems should be identified and the solutions sought before the change is gradually introduced.
I hope that other hon. Members will join the Opposition and vote for transitional arrangements which will at least offest the worst aspects of these changes.

Mr. Eric Clarke: One of our main difficulties is the absence of an integrated energy policy. Obviously, we are a lucky nation in that we have indigenous oil, coal, gas and nuclear industries, but the taxation problem is causing unemployment.
This is a short-term affair; I can see it in no other way. Constituents write to me, asking in particular what is happening to the exploitation of exploration. An extractive industry will die if there is no investment in exploration. It is impossible to keep pumping oil up a single hole; the industry must be continually expanded. My hon. Friend the Member for Edinburgh, Central (Mr. Darling) mentioned the threat that investors may go elsewhere: that threat is staring us in the face. Many nations have now lifted the barriers preventing multi-national companies from exploiting their resources. I am thinking especially of China. Many of the North sea companies' competitors are there already. One aspect of the industry is that those who are not there on the ground floor will lose out to a market that has potential for the future.
Another aspect of the current threat is the knock-on effect on technology. It will be our loss if we hesitate to exploit the deep parts of the North sea, the export potential for the next generation and all the facilities, know-how and equipment available because of a taxation problem. The export potential and know-how that we can give other countries is there, staring us in the face. If there is a run-down in the companies involved, or of the high-technology institutes with which such companies work, that alone could give cause for regret in the future.
I am adding my tuppence worth to the debate on the basis of what I consider to be common sense. Those who have written to me feel that, ultimately, they will pay the price for the Government's incompetence in organising an inquiry into the effects of their proposals; that cannot be tolerated. I know how I will vote tonight, and I appeal to other hon. Members to vote in the same Lobby to ensure that the Government reconsider their proposals.
My appeal is based on common sense. We want to exploit the whole of the North sea and its potential. It should not be thought for a moment that only Grampian and the north-east are affected: anyone who boards a London train to Aberdeen will see many former miners and shipyard workers from the north-east of England whose skills have been adapted for work in the North sea. Many technical people throughout the United Kingdom are affected by the cut in exploitation of resources. I hope that hon. Members will use their common sense and support the amendment.

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Mr. Malcolm Chisholm: I too will curtail my remarks.
I became interested in this subject because of two constituency considerations. First, I was getting many letters from men who worked in the North sea and were concerned that their jobs were at risk. Secondly, I was aware that a large factory in my constituency, United Wire at Granton, had quite a few employees making screening equipment for use in oil drilling. Even within a few weeks of the Budget, orders for that equipment had declined by 20 per cent.
The Government may be rejoicing that at last they have hit the bottom of the big hole that they dug for themselves,

but the rest of us are still worried about unemployment. In Leith, we will not be dancing in the streets because 46 people came off the claimant count last month; we still have over 5,000 officially unemployed. My first concern is to make sure that no more people lose their jobs.
We have heard about other parts of Scotland being worse affected. My main question is to find out the Minister's estimate of the number of jobs likely to be lost because of the tax change. Is he sticking by the much-quoted press release of 1 April, which mentioned 10,000? Another way of putting the question is to ask him whether he agrees with Professor Kemp.
I accept that Professor Kemp says different things. There may be room for small changes in the tax regime, but the main thrust of Professor Kemp's report is that about 10,000 jobs will be lost. I intended to go into his report in more detail, but because of the shortage of time I will leave it.
Does the Minister go along with what small businesses are saying? The Government claim to support small businesses. Those businesses want to know what will happen to the licences they have. Will they have to proceed with them? Does the Minister realise that small businesses are saying that they will go to other parts of the world where the tax regime is favourable?
Why is it always BP which is quoted by Conservative Members? I think that BP is the only source which has been quoted more than Professor Kemp in the debate. BP, which stands to gain £150 million from the tax change, has been abandoning new exploration in the North sea for a long time. Of course a company can be a winner under the new regime if it does not want to explore. It was misleading for the Minister to quote the new BP development, because it has a contract for that, and it will still get tax relief on it. As my hon. Friend the Member for Dundee, East (Mr. McAllion) asked, would the company have initiated the development under the tax regime?
Unemployment is our main concern, but many points about the proposal are reminiscent of problems which the Government have run into over the years. There is the short-term nature of the decision, as with so many other economic decisions. The Government seem to be saying, "Let us do something that will bring in money." It is connected with the problem of the public sector borrowing requirement. As with yesterday's debate, the tax proposal seems to he an easy way of solving the problem without regard to the long-term consequences.
Many of the mistakes which the Government have made in their economic policy are being repeated in this measure. One quarter of United Kingdom manufacturing investment is in the North sea. The low level of manufacturing investment has been a key problem under the Government, yet they are prepared to let that decline, with the result that overseas investment by companies will increase. Encouragement of overseas investment has been a feature of the Government for the last 14 years.
Even considering the matter in terms of revenue, if fewer new fields are developed, that will reduce revenue and exacerbate the fundamental balance of payments problem, to which the Government have not sought any solution. Many problems will be made worse by the measure. The main problem is that it will increase unemployment, which is still far too high in Scotland and throughout the United Kingdom.

Mr. Calum Macdonald: I understand the pressure of time, but it is important to put on record that the changes will not just affect the east coast of Scotland, north-east and south-east, but will have a major impact on the west coast. The impact on the west coast may not be so great in terms of loss of income or the volume of jobs, but it may be disproportionately greater in relation to what those jobs mean for a fragile area such as the west coast.
There are direct and indirect implications. The direct implication involves people from the west coast who are employed offshore in the North sea and companies on the west coast that service part of the North sea sector. One of the most important, if not the most important, is in my constituency. The fabrication yard at Arnish, just outside Stornoway, opened in the mid-70s and closed in the late 80s when the company, Hereema, pulled out. Subsequently there was a management buyout. Under the local managers, and with the help, support and hard work of the work force, the yard has prospered, employing up to 200 people on average. That is a large number in view of the fragile economy of the Western Isles.
The quality of the jobs is as important as the number. In a rural economy dominated by agriculture and fishing, it is valuable to have highly skilled engineering jobs, filled 95 per cent. by local workers. Small yards such as that are likely to be the worst affected by the changes. Small yards will not pick up orders from companies like BP. They get orders from the smaller exploration companies which will be hardest hit by the changes.
As to the indirect effect, people from the west coast work in the North sea sector but they send their earnings home. That money plays a vital part in maintaining the economic health of the west coast.
One final factor is even more indirect—the potential impact on future exploration and development of oil and gas reserves off the west coast of Scotland, if they prove to be substantial. Some companies have expressed great interest in extending their activities to the west coast. Areas such as the Western Isles could gain greatly from that development. The companies providing services and supplies would probably not be as sophisticated as those that have sprung up on the east coast, but even if they were moderate sized they would have a beneficial effect on the fragile economy of the west coast.
It is deeply irresponsible of the Government to threaten the exploration and development potential of the west coast of Scotland. Did the Government take account of the longer-term effect? BP is showing great interest in the western continental shelf. It will turn out to be one of the winners from the changes. But I wonder whether BP will put its winnings into exploration and development off the west coast, given the effect of the changes. Did the Government even consult BP to find out exactly what the implications of the changes would be on the company's plans for developing off the west coast?
The jobs impact on the west coast of Scotland may seem relatively small in the context of 10,000 job losses overall, but it will have a huge and disproportionate impact on the west coast if exploration activity is seriously threatened by the changes. I join other hon. Members in asking the Government to reconsider the whole issue, especially the prospect of a transitional regime, and at least give a commitment that if things turn out badly for the industry as a result of the changes in the coming year or two, they will review the matter again.

Mr. Dorrell: It is common ground in the Committee that we are debating important changes with important implications for the structure of the oil industry in the medium and long term.
I begin by answering directly the hon. Members for Aberdeen, North (Mr. Hughes) and for Dundee, West (Mr. Ross) and others. I can tell them clearly and in terms that the changes are the result of a substantial programme of work that involved consultation between the Treasury, the Inland Revenue, the Department of Trade and Industry and, before that, the Department of Energy.
The work was carefully prepared and the conclusions were reached by the Chancellor of the Exchequer on the basis of that work. The common ground, shared in all parts of the Committee, is a desire to ensure that we have in the North sea a stable fiscal regime that is attractive to the operators in the North sea and the supply industry. I agree with my hon. Friend the Member for Orpington (Mr. Horam) about the importance of ensuring that we have in this country an environment that encourages the development of competition in the oil companies and the supply sectors.
No one can believe that the present system can properly be described as stable. The basic facts about the system are well known and on the record. In 1991–92, something that we call a tax cost the Exchequer £216 million. In 1992–93, it raised the princely sum of £54 million. So, in the last two years for which figures are available, the tax cost the Exchequer £162 million.
The reason for that in large measure can be attributed to development of the use of the exploration and appraisal relief well beyond anything that was envisaged when the relief was originally introduced. When it was introduced in 1983, the budget estimate was that it would have a revenue cost of £40 million. The cost in the most recent year was £700 million.
I stand absolutely by what I said in an intervention in the speech of the hon. Member for Aberdeen, North: any serious analysis of the present North sea fiscal regime must conclude that it is in need of change. That was obvious to me when I took over responsibility for the matter 12 months ago, and I think it was equally obvious to the oil companies and oil industry representatives who have been coming into my office in that 12-month period to talk about ideas for the evolution of the North sea fiscal regime.
I do not apologise for giving my view on Second Reading that I do not believe it is right for the Treasury to engage in direct formal dicussions about the future of tax rates and tax allowances in the system. That leads to serious distortions in economic behaviour, partly through companies responding to what they perceive to be a threat to the regime and partly through financial markets seeking to discount and second-guess what tax changes are likely.
I do not agree with my hon. Friend the Member for Orpington that it is sensible for Ministers to engage in a discussion about the detail of rates and allowances. It is clear to me that any serious analysis of the North sea fiscal regime over the past two years must conclude that it is a system in need of reform.

Mr. Salmond: The Minister talked about a series of consultations, but I question whether many oil industry representatives were aware that they were taking part in


consultations. He also talked of departmental consultations. He did not mention the Scottish Office. Was that a deliberate omission, or did he just forget it?

Mr. Dorrell: The sponsoring Department for the oil industry was the Department of Energy, now the Department of Trade and Industry. The purpose of the interdepartmental discussions was to ensure that the decision—which rests properly with my right hon. Friend the Chancellor of the Exchequer—was made on the basis of proper knowledge. That knowledge was available to him and his decision was based on a proper appraisal of the alternatives.
Let us examine the substance and detail of the present position. We have a paper tax rate of 75 per cent. for the petroleum revenue tax. That is having the effect, in my view, of depressing development activity and potentially shortening field life, because it is uniquely the highest marginal rate of tax collected anywhere in our fiscal system now.

Mr. Darling: Will the Minister explain what will be the benefit of the changes? He talked about the savings, but one must take into account the PRT that will not be collected. What calculations has he made of the cost of 10,000 people losing their jobs? Can we be given an overall picture of what the position will be from the taxpayer's point of view?

Mr. Dorrell: I gave the figure in an intervention in the speech of the hon. Member for Dundee, West. I pointed out that the Red Book contained a projection for 1994–95 of £300 million and for 1995–96 of £400 million, being the net yield from the changes.
The 75 per cent. PRT rate is recycled into exploration and appraisal, so in many cases the taxpayer is meeting 83 per cent., if corporation tax is included—that is, 75 per cent. PRT plus 33 per cent. corporation tax—of the cost of exploration and appraisal in the North sea. But as most of the fields currently being found will not pay PRT—because of the effect of the allowances—the taxpayer's share of the return on those fields, if they are found and developed, amounts to 33 per cent. In other words, the Treasury is signing the taxpayer up to a deal under which the taxpayer contributes 83 per cent. of the equity in return for 33 per cent. of the return.
That fundamental distortion leads to the tax subsidies which my hon. Friend the Member for Beaconsfield (Mr. Smith) was right to deplore. I believe that if a project is uneconomic, it is no part of the job of the tax system to make that uneconomic activity appear economic. That is the result of the PRT system as it now exists.
Another principle of the reform which I hold to be important is that if the existing system will not raise any tax, we do well to admit it. It seems nonsensical to talk about PRT in the context of a range of fields when it is common ground on the part of all who have examined the issue that it is a PRT system that will not produce any yield from most of the fields currently being explored.
If there is to be no yield, it is better to admit it and abolish the tax. The only purpose of keeping the tax, if there is to be no yield, is to provide an excuse for paying tax allowances. It seems the ultimate absurdity, which is

the position that the amendment would provide, to maintain a tax system not with the object of collecting tax but to pay out allowances.
If we want to pay a subsidy to a particular sector, by all means let us do so, but it should be properly justified, not brought in under the guise of a tax system.

Mr. Malcolm Bruce: Does the Minister accept that those of us who agree that there is a case for reform and are calling for transitional arrangements are worried that the long-term disincentive to exploration will mean that the Treasury and the economy will lose out because some oil fields may not be found? It is important to ensure a viable incentive to encourage oil companies to explore in the United Kingdom rather then elsewhere.

Mr. Dorrell: I am coming to the effect of the changes on exploration, which is an important point mentioned by several hon. Members. Before doing so, I want to draw the Committee's attention to something mentioned by my hon. Friend the Member for Kincardine and Deeside (Mr. Kynoch), who does not uncritically support every aspect of the proposals. It was he who drew attention to the fact that there is striking unanimity in the industry on the point that the principles behind the long-term changes that we want to introduce are right.
I should like to quote not, as might be predicted, BP but a number of other companies. Mobil says:
We believe that the changes proposed to the North Sea fiscal regime are well-founded and in the long-term interest of the industry and of the nation.
Amoco's view of the changes
is one of welcome for their general thrust.
Marathon
is supportive of the direction being taken. We believe that in the long term the development of UKCS oil and gas resources will benefit from these changes.
Shell UK believes
that the thrust of the changes is correct.
The industry's association, the United Kingdom Offshore Operators Association, says:
There is agreement that the reduction of the PRT rate and the elimination of PRT for new fields is a welcome step which will be positive to enhancing productivity from existing large mature fields and to the development of new fields.
There is thus widespread recognition that the long-term effect of the changes will be to make the tax and fiscal regime in the North sea much more rational than the system that it replaces.
Several hon. Members have sought to concentrate on how we arrange the transition from the system as it is to the system that we want to create. I turn now to the transitional arrangements which the Government considered ahead of the Budget and for which we have provided in the Finance Bill. We must test proposals for transitional arrangements in two ways. First, as the new structure seems to be more rational and likely to lead to a better use of resources in the economy, it is important that the transitional regime delivers the change surely, so that there is no doubt that we will reach the end result reasonably quickly. Secondly, and equally important, we want the changes delivered with the minimum dislocation. I acknowledge that some dislocation from changes on this scale is inevitable, but we want a method of introducing them that minimises it.
Before we engage in a sensible discussion of the precise structure of transitional arrangements, I should add that I agree with the point made by my hon. Friend the Member for Orpington and by the hon. Member for Edinburgh,


Leith (Mr. Chisholm)—we must make an assessment of the effect of the proposed changes on employment and especially on exploration. That will tell us the size of the transitional problem with which we need to deal.
A number of factors are relevant in this context. First, four companies in the North sea together represent 40 per cent. of all exploration and appraisal activity there. They have publicly committed themselves to no reduction in E and A. The four are Shell, Esso, Mobil and BP. Secondly, 40 per cent. of current exploration and appraisal activity does not benefit at all from E and A relief from PRT. That being so, I am at a loss to understand how the withdrawal of the relief can lead to companies cutting short their E and A programmes. There is some overlap between the two categories, but as 40 per cent. of activity has been committed to being maintained and a different 40 per cent. is not benefiting from the relief that we are withdrawing, the worst case that we posited—a 50 per cent. reduction in exploration and appraisal—is, as I told an Aberdeen newspaper, improbably pessimistic.
I am reinforced in that belief by the evidence of what is going on in the present 14th licensing round. I understand that the Department of Trade and Industry told companies that had put in bids in the 14th round after the Budget that if, in the light of the Budget changes, they wanted to withdraw or change their bids, they were free to do so. Only a minimal number of companies have taken up that opportunity. So here we have a clear market test of the likely effect on exploration; it reinforces my view that it is profoundly unlikely to be anything like as serious as most of the worst case scenarios would suggest.

Mr. Salmond: The Minister is telling us that everything will be all right and we should not worry too much. Can he offer the Committee anything comparable to the thoroughness and academic rigour of Professor Kemp's study? If not, would we not be best advised to proceed on the conclusion of the professor's analysis?

Mr. Dorrell: I have given the Committee the basis on which I am working. Professor Kemp came to see me this morning and I asked him for the basis on which the reduction in wells had been posited in the most recent document. He said that that had to be a matter of judgment—his words, not mine. I have provided the Committee with the evidence on which we have reached our conclusion that a 50 per cent. reduction in the level of exploration is improbable, and it is not the only factor acting on employment and total levels of activity in the economy associated with the North sea.
I say that that is not the only factor, because it altogether omits the fact that the reduction in the PRT rate from 75 per cent. to 50 per cent. has the effect of doubling the post-tax return of all development activity and all current activity in producing fields. It was precisely that effect that led BP yesterday, in announcing its £1·5 billion development programme, to say, not that the programme was dreamt up after 16 March—of course it was not—but that, against the background of the Budget changes, its enhanced development programme was "made more likely" by those Budget changes.
If the hon. Member for Edinburgh, Central (Mr. Darling) prefers an alternative quotation, the company said that the programme was "given a significant impetus"

by the Budget changes. I ask the Committee to recognise that, for oil companies considering development activity or the life of their existing producing fields, it is wildly improbable that the doubling of the post-tax rate of return will have no effect whatever on those two indicators of activity.
It was against that background that we carefully considered the transitional arrangements that should apply to get us from where we are to where we want to be. Three choices were suggested to us, and I will consider them briefly in turn. First, it was suggested from some quarters that we should protect obligation wells. That case was argued by very few companies—indeed, by almost none of the companies that have been to see me—and it is easy to see why. The bids that were put in during earlier licensing rounds, as in this one, were invited on the basis of a proper economic assessment, and the companies that submitted them overwhelmingly made their judgments on the basis of such assessments.
I was asked about obligations. Our position was made abundantly clear in a letter from my hon. Friend the Minister for Energy to UKOOA, dated 22 April, in which, speaking for the Government collectively, he said:
I regard the drilling obligations entered into as binding, and I expect these to be honoured …
Of course, this does not exclude adjustments to particular wells in a drilling programme. We have always been prepared to consider, for example, the rephasing of individual wells on a case by case basis, having regard to technical or other specific arguments for change. But it was not our intention at the time of the Budget that there should be any general reinterpretation of the licensing obligations along the lines UKOOA appear to suggest.
That is clearly the position on obligation wells.
7.30 pm
The second suggestion is that we should phase changes in the tax rates and the allowances. My hon. Friend the Member for Orpington saw some attraction in that approach. It seems to me that the problem is that, by delaying the PRT cut, we should be delaying precisely the incentive to which BP responded yesterday, while creating a powerful incentive for exploration companies to bring forward activity to benefit from the more generous allowances that would prevail—but prevail under notice. It would clearly be in the interests of the companies to act now rather than later, in order to benefit from a tax concession that we would have announced was being phased out.
Some hon. Members have said that that can be dealt with by capping. It seems to me that that illustrates the unattractiveness of that course. I am reminded of the common agricultural policy. It is acknowledged that a distortion is being introduced, but we are told not to worry as another distortion can be introduced to control the first one. That is not a very attractive way of designing a tax policy.
It is for those reasons that I prefer the third approach to transition. I refer to the Government's approach, as set out in the Finance Bill, which is based on existing contractual obligations. We have said that the changes will he phased, in the sense that, although E and A relief for new fields is being abolished from 16 March, the rate cut will take effect from 1 July. That has provided my right hon. Friend the Chancellor of the Exchequer with up to £200 million gross for transitional relief, based on the existing contractual commitments of the supply companies


operating in the North sea—precisely those most likely to be damaged by over-abrupt change in the tax system. That was the conclusion of our careful review, and it remains so.
I started by stressing the importance of stability in the fiscal regime. We carefully considered all the choices. We believe that this structure is robust for all likely scenarios regarding oil discoveries and oil prices. No doubt the detail of the proposal can be examined in Committee. We shall have plenty of opportunity for such examination. I believe that the structure of this proposal is the result of a serious programme of work. It is one in which the Committee and the industry can have confidence, and I recommend that the amendments be rejected.

Mr. Darling: The Committee can be in no doubt about the Government's position: there are to be no concessions on this measure. The Minister has not even disputed the fact that at least 10,000 jobs will be lost as a result of the Bill. I understand that the hon. Member for Aberdeen, South (Mr. Robertson) is a former Tory party agent. Tonight, he must choose between the interests of the Conservative party and the interests of his constituents. Last night, he voted for an increase in the taxes of his constituents. If he votes with the Government tonight, he will be supporting a measure that will result in many of them losing their jobs. The hon. Gentleman's attitude stands in stark contrast to that of his hon. Friends the Members for Orpington (Mr. Horam) and Kincardine and Deeside (Mr. Kynoch), who at least recognise that there will be transitional problems. But the Government have made it absolutely clear that they are not prepared to meet the legitimate demands of people involved in the industry and those living in communities affected by these proposals, who want some sort of relief.
The Government have not disputed the fact that exploration will be affected. It was astounding to hear the Minister pray in aid of this proposal Shell, Esso, Mobil and BP, which, he says, are committed to having no reduction. How can any Government rely on the best intentions of a company, stated just after the announcement of a Budget measure? It is the Government's duty to take into account the interests of the United Kingdom as a whole rather than the interests of a few oil companies. The measure will undoubtedly benefit some oil companies, as we have said during this debate. However, there is a substantial risk that exploration will be exported from the United Kingdom waters to other parts of the world, with the result that the natural resource we have in the North sea and in our Atlantic waters will be lost. There is no dispute about the fact that, because of the traumatic disruption caused by the Chancellor's announcement, jobs will go. The Government have made it absolutely clear that there is to be no transitional relief.
To those Conservative Members who have said in the Chamber today, as well as to their constituents by way of radio and television and the other media, that they are not happy with the Government's position I say that they now have a very clear choice. If they want to support the interests of the North sea oil industry and this country's long-term energy interests, they will have to vote for Labour's amendment. By voting with the Government they will shut the door on any hope for the industry. They have nowhere to hide, and I invite them to join us in the Lobby.

Question put, That the amendment be made:—

The Committee divided: Ayes 253, Noes 289.

Division No. 262]
[7.35 pm


AYES


Abbott, Ms Diane
Field, Frank (Birkenhead)


Adams, Mrs Irene
Fisher, Mark


Ainger, Nick
Flynn, Paul


Ainsworth, Robert (Cov'try NE)
Foster, Rt Hon Derek


Allen, Graham
Foster, Don (Bath)


Alton, David
Foulkes, George


Anderson, Donald (Swansea E)
Fraser, John


Anderson, Ms Janet (Ros'dale)
Fyfe, Maria


Armstrong, Hilary
Galbraith, Sam


Ashdown, Rt Hon Paddy
Gapes, Mike


Ashton, Joe
Garrett, John


Austin-Walker, John
Gerrard, Neil


Barnes, Harry
Gilbert, Rt Hon Dr John


Barron, Kevin
Godsiff, Roger


Battle, John
Golding, Mrs Llin


Bayley, Hugh
Gordon, Mildred


Beggs, Roy
Gould, Bryan


Beith, Rt Hon A. J.
Graham, Thomas


Bell, Stuart
Grant, Bernie (Tottenham)


Benn, Rt Hon Tony
Griffiths, Nigel (Edinburgh S)


Bennett, Andrew F.
Griffiths, Win (Bridgend)


Benton, Joe
Grocott, Bruce


Berry, Dr. Roger
Gunnell, John


Betts, Clive
Hain, Peter


Blair, Tony
Hall, Mike


Blunkett, David
Hanson, David


Boateng, Paul
Harman, Ms Harriet


Boyce, Jimmy
Harvey, Nick


Boyes, Roland
Henderson, Doug


Bradley, Keith
Heppell, John


Brown, Gordon (Dunfermline E)
Hill, Keith (Streatham)


Brown, N. (N'c'tle upon Tyne E)
Hinchliffe, David


Bruce, Malcolm (Gordon)
Hogg, Norman (Cumbernauld)


Burden, Richard
Hood, Jimmy


Byers, Stephen
Hoon, Geoffrey



Callaghan, Jim
Howarth, George (Knowsley N)


Campbell, Mrs Anne (C'bridge)
Howells, Dr. Kim (Pontypridd)


Campbell, Ronnie (Blyth V)
Hughes, Kevin (Doncaster N)


Campbell-Savours, D. N.
Hughes, Robert (Aberdeen N)


Canavan, Dennis
Hughes, Simon (Southwark)


Cann, Jamie
Hutton, John


Chisholm, Malcolm
Illsley, Eric


Clark, Dr David (South Shields)
Jackson, Glenda (H'stead)


Clarke, Eric (Midlothian)
Jackson, Helen (Shef'ld, H)


Clarke, Tom (Monklands W)
Jamieson, David


Clelland, David
Janner, Greville


Clwyd, Mrs Ann
Jones, Barry (Alyn and D'side)


Connarty, Michael
Jones, leuan Wyn (Ynys Môn)


Cook, Frank (Stockton N)
Jones, Jon Owen (Cardiff C)


Cook, Robin (Livingston)
Jones, Lynne (B'ham S O)


Corston, Ms Jean
Jones, Martyn (Clwyd, SW)


Cousins, Jim
Jones, Nigel (Cheltenham)


Cryer, Bob
Jowell, Tessa


Cunningham, Jim (Covy SE)
Kaufman, Rt Hon Gerald


Cunningham, Rt Hon Dr John
Keen, Alan


Dafis, Cynog
Kennedy, Charles (Ross,C&S)


Darling, Alistair
Kennedy, Jane (Lpool Brdgn)


Davidson, Ian
Khabra, Piara S.


Davies, Bryan (Oldham C'tral)
Kilfoyle, Peter


Davies, Rt Hon Denzil (Llanelli)
Kinnock, Rt Hon Neil (Islwyn)


Davies, Ron (Caerphilly)
Kirkwood, Archy


Denham, John
Leighton, Ron


Dewar, Donald
Lestor, Joan (Eccles)


Dixon, Don
Lewis, Terry


Dobson, Frank
Livingstone, Ken


Donohoe, Brian H.
Lloyd, Tony (Stretford)


Dowd, Jim
Llwyd, Elfyn


Dunnachie, Jimmy
Loyden, Eddie


Dunwoody, Mrs Gwyneth
Lynne, Ms Liz


Eagle, Ms Angela
McAllion, John


Eastham, Ken
McAvoy, Thomas


Enright, Derek
McCartney, Ian


Etherington, Bill
Macdonald, Calum


Evans, John (St Helens N)
McFall, John


Ewing, Mrs Margaret
McGrady, Eddie


Fatchett, Derek
McKelvey, William


Faulds, Andrew
Mackinlay, Andrew






McLeish, Henry
Rogers, Allan


Maclennan, Robert
Rooker, Jeff


McMaster, Gordon
Rooney, Terry


Madden, Max
Ross, Ernie (Dundee W)


Mahon, Alice
Rowlands, Ted


Mandelson, Peter
Ruddock, Joan


Marek, Dr John
Salmond, Alex


Marshall, David (Shettleston)
Sedgemore, Brian


Marshall, Jim (Leicester, S)
Sheerman, Barry


Martin, Michael J. (Springburn)
Sheldon, Rt Hon Robert


Martlew, Eric
Shore, Rt Hon Peter


Maxton, John
Short, Clare


Meacher, Michael
Simpson, Alan


Michael, Alun
Skinner, Dennis


Michie, Bill (Sheffield Heeley)
Smith, Andrew (Oxford E)


Michie, Mrs Ray (Argyll Bute)
Smith, C. (Isl'ton S & F'sbury)


Milburn, Alan
Smith, Rt Hon John (M'kl'ds E)


Miller, Andrew
Smith, Llew (Blaenau Gwent)


Mitchell, Austin (Gt Grimsby)
Soley, Clive


Moonie, Dr Lewis
Spearing, Nigel


Morgan, Rhodri
Steel, Rt Hon Sir David


Morley, Elliot
Steinberg, Gerry


Morris, Rt Hon A. (Wy'nshawe)
Stevenson, George


Morris, Estelle (B'ham Yardley)
Strang, Dr. Gavin


Morris, Rt Hon J. (Aberavon)
Taylor, Mrs Ann (Dewsbury)


Mowlam, Marjorie
Taylor, Matthew (Truro)


Mullin, Chris
Tipping, Paddy


Murphy, Paul
Turner, Dennis


Oakes, Rt Hon Gordon
Tyler, Paul


O'Brien, Michael (N W'kshire)
Vaz, Keith


O'Hara, Edward
Walker, Rt Hon Sir Harold


Olner, William
Wallace, James


O'Neill, Martin
Wardell, Gareth (Gower)


Orme, Rt Hon Stanley
Wareing, Robert N


Parry, Robert
Watson, Mike


Pendry, Tom
Welsh, Andrew


Pickthall, Colin
Wicks, Malcolm


Pike, Peter L.
Wigley, Dafydd


Pope, Greg
Williams, Rt Hon Alan (Sw'n W)


Powell, Ray (Ogmore)
Williams, Alan W (Carmarthen)


Prentice, Ms Bridget (Lew'm E)
Wilson, Brian


Prentice, Gordon (Pendle)
Winnick, David


Prescott, John
Wise, Audrey


Primarolo, Dawn
Worthington, Tony


Purchase, Ken
Wray, Jimmy


Quin, Ms Joyce
Wright, Dr Tony


Randall, Stuart
Young, David (Bolton SE)


Raynsford, Nick



Reid, Dr John
Tellers for the Ayes


Robertson, George (Hamilton)
Mr. John Spellar and Mr. Alan Meale.


Robinson, Geoffrey (Co'try NW)



Roche, Mrs. Barbara





NOES


Ainsworth, Peter (East Surrey)
Bowis, John


Aitken, Jonathan
Boyson, Rt Hon Sir Rhodes


Alison, Rt Hon Michael (Selby)
Brandreth, Gyles


Allason, Rupert (Torbay)
Brazier, Julian


Amess, David
Bright, Graham


Ancram, Michael
Brooke, Rt Hon Peter


Arbuthnot, James
Brown, M. (Brigg & Cl'thorpes)


Arnold, Jacques (Gravesham)
Browning, Mrs. Angela


Arnold, Sir Thomas (Hazel Grv)
Budgen, Nicholas


Ashby, David
Burns, Simon


Aspinwall, Jack
Burt, Alistair


Atkinson, Peter (Hexham)
Butler, Peter



Baker, Rt Hon K. (Mole Valley)
Carlisle, John (Luton North)


Baker, Nicholas (Dorset North)
Carlisle, Kenneth (Lincoln)


Baldry, Tony
Carrington, Matthew


Banks, Matthew (Southport)
Carttiss, Michael


Banks, Robert (Harrogate)
Cash, William


Bates, Michael
Channon, Rt Hon Paul


Batiste, Spencer
Churchill, Mr


Bellingham, Henry
Clappison, James


Bendall, Vivian
Clark, Dr Michael (Rochford)


Beresford, Sir Paul
Clarke, Rt Hon Kenneth (Ruclif)


Blackburn, Dr John G.
Clifton-Brown, Geoffrey


Booth, Hartley
Coe, Sebastian


Boswell, Tim
Colvin, Michael


Bottomley, Peter (Eltham)
Congdon, David





Conway, Derek
Howard, Rt Hon Michael


Coombs, Anthony (Wyre For'st)
Howarth, Alan (Strat'rd-on-A)


Coombs, Simon (Swindon)
Howell, Rt Hon David (G'dford)


Cope, Rt Hon Sir John
Hughes Robert G. (Harrow W)


Couchman, James
Hunt, Rt Hon David (Wirral W)


Cran, James
Hunter, Andrew


Currie, Mrs Edwina (S D'by'ire)
Hurd, Rt Hon Douglas


Curry, David (Skipton & Ripon)
Jack, Michael


Davies, Quentin (Stamford)
Jackson, Robert (Wantage)


Davis, David (Boothferry)
Jenkin, Bernard


Day, Stephen
Jessel, Toby


Deva, Nirj Joseph
Johnson Smith, Sir Geoffrey


Dickens, Geoffrey
Jones, Gwilym (Cardiff N)


Dicks, Terry
Jones, Robert B. (W Hertfdshr)


Dorrell, Stephen
Jopling, Rt Hon Michael


Douglas-Hamilton, Lord James
Kellett-Bowman, Dame Elaine


Dover, Den
Key, Robert



Duncan, Alan
Kilfedder, Sir James


Duncan-Smith, Iain
King, Rt Hon Tom


Dunn, Bob
Kirkhope, Timothy


Dykes, Hugh
Knapman, Roger


Eggar, Tim
Knight, Mrs Angela (Erewash)


Elletson, Harold
Knight, Greg (Derby N)


Emery, Rt Hon Sir Peter
Knight, Dame Jill (Bir'm E'st'n)


Evans, David (Welwyn Hatfield)
Knox, David


Evans, Jonathan (Brecon)
Kynoch, George (Kincardine)


Evans, Nigel (Ribble Valley)
Lait, Mrs Jacqui


Evans, Roger (Monmouth)
Lamont, Rt Hon Norman


Evennett, David
Lawrence, Sir Ivan


Faber, David
Legg, Barry


Fabricant, Michael

Lester, Jim (Broxtowe)


Fairbairn, Sir Nicholas
Lidington, David


Field, Barry (Isle of Wight)
Lightbown, David


Fishburn, Dudley
Lilley, Rt Hon Peter


Forman, Nigel
Lloyd, Peter (Fareham)


Forsyth, Michael (Stirling)
Lord, Michael


Forth, Eric
Luff, Peter


Fowler, Rt Hon Sir Norman
Lyell, Rt Hon Sir Nicholas


Fox, Dr Liam (Woodspring)
MacGregor, Rt Hon John


Fox, Sir Marcus (Shipley)
MacKay, Andrew


Freeman, Roger
Maclean, David


French, Douglas
McLoughlin, Patrick


Fry, Peter
McNair-Wilson, Sir Patrick


Gale, Roger
Madel, David


Gallie, Phil
Maitland, Lady Olga


Gardiner, Sir George
Malone, Gerald


Garel-Jones, Rt Hon Tristan
Mans, Keith


Garnier, Edward
Marland, Paul


Gill, Christopher
Marlow, Tony


Gillan, Cheryl
Marshall, John (Hendon S)


Goodlad, Rt Hon Alastair
Martin, David (Portsmouth S)


Goodson-Wickes, Dr Charles
Merchant, Piers


Gorman, Mrs Teresa
Milligan, Stephen


Gorst, John
Mitchell, Andrew (Gedling)


Greenway, Harry (Ealing N)
Moate, Sir Roger


Greenway, John (Ryedale)
Monro, Sir Hector


Griffiths, Peter (Portsmouth, N)
Montgomery, Sir Fergus


Grylls, Sir Michael
Moss, Malcolm


Gummer, Rt Hon John Selwyn
Needham, Richard


Hague, William
Nelson, Anthony


Hamilton, Rt Hon Archie (Epsom)
Neubert, Sir Michael


Hamilton, Neil (Tatton)
Newton, Rt Hon Tony


Hanley, Jeremy
Nicholls, Patrick


Hannam, Sir John
Nicholson, David (Taunton)


Hargreaves, Andrew
Nicholson, Emma (Devon West)


Harris, David
Norris, Steve


Haselhurst, Alan
Onslow, Rt Hon Sir Cranley


Hawkins, Nick
Oppenheim, Phillip


Hawksley, Warren
Ottaway, Richard


Hayes, Jerry
Page, Richard


Heald, Oliver
Paice, James


Heath, Rt Hon Sir Edward
Patnick, Irvine


Heathcoat-Amory, David
Patten, Rt Hon John


Hendry, Charles
Pattie, Rt Hon Sir Geoffrey


Heseltine, Rt Hon Michael
Pawsey, James


Hicks, Robert
Peacock, Mrs Elizabeth


Higgins, Rt Hon Sir Terence L.
Pickles, Eric


Hill, James (Southampton Test)
Porter, David (Waveney)


Horam, John
Portillo, Rt Hon Michael


Hordern, Rt Hon Sir Peter
Powell, William (Corby)






Redwood, John
Tapsell, Sir Peter


Rendel, David
Taylor, Ian (Esher)


Renton, Rt Hon Tim
Taylor, John M. (Solihull)


Richards, Rod
Taylor, Sir Teddy (Southend, E)


Riddick, Graham
Temple-Morris, Peter


Rifkind, Rt Hon. Malcolm
Thomason, Roy


Robathan, Andrew
Thompson, Patrick (Norwich N)


Roberts, Rt Hon Sir Wyn
Thornton, Sir Malcolm


Robertson, Raymond (Ab'd'n S)
Thurnham, Peter


Robinson, Mark (Somerton)
Townsend, Cyril D. (Bexl'yh'th)



Roe, Mrs Marion (Broxbourne)
Tracey, Richard


Rowe, Andrew (Mid Kent)
Tredinnick, David


Rumbold, Rt Hon Dame Angela
Trend, Michael



Ryder, Rt Hon Richard
Trotter, Neville


Sackville, Tom
Twinn, Dr Ian


Sainsbury, Rt Hon Tim
Viggers, Peter


Scott, Rt Hon Nicholas
Waldegrave, Rt Hon William


Shaw, David (Dover)
Walden, George


Shaw, Sir Giles (Pudsey)
Walker, Bill (N Tayside)


Shephard, Rt Hon Gillian
Waller, Gary


Shepherd, Richard (Aldridge)
Wardle, Charles (Bexhill)


Shersby, Michael
Waterson, Nigel


Sims, Roger
Watts, John


Skeet, Sir Trevor
Wells, Bowen


Smith, Tim (Beaconsfield)
Wheeler, Rt Hon Sir John


Soames, Nicholas
Whitney, Ray


Spencer, Sir Derek
Whittingdale, John


Spicer, Sir James (W Dorset)
Widdecombe, Ann


Spicer, Michael (S Worcs)
Wiggin, Sir Jerry


Spink, Dr Robert
Wilkinson, John


Spring, Richard
Willetts, David


Sproat, Iain
Wilshire, David


Squire, Robin (Hornchurch)
Winterton, Mrs Ann (Congleton)


Stanley, Rt Hon Sir John
Winterton, Nicholas (Macc'f'ld)


Steen, Anthony
Wolfson, Mark


Stephen, Michael
Yeo, Tim


Stern, Michael
Young, Sir George (Acton)


Stewart, Allan



Streeter, Gary
Tellers for the Noes:


Sumberg, David
Mr. Sydney Chapman and Mr. Timothy Wood.


Sweeney, Walter



Sykes, John

Question accordingly negatived.

Amendment proposed: No. 40, in page 137, line 36, at end insert 'or—
(c) one in which in whole or in part, a commitment to a programme of Exploration and Appraisal drilling was undertaken under the terms of a licence agreement and approved by the Secretary of State before that date, where the field participants elect to so classify the oil field and to accept a diminishing percentage of allowable expenditure on exploration and appraisal to be offset against PRT and a ceiling on the amount allowed for each company as allowable expenditure for PRT relief; the percentage, the timescale and the ceiling to be determined by the Secretary of State and approved by the affirmative resolution of each House of Parliament.'. —[Mr. Salmond.]

Question put, That the amendment be made:—

The Committee divided: Ayes 250, Noes 287.

Division No. 263]
[7.49 pm


AYES


Abbott, Ms Diane
Bayley, Hugh


Adams, Mrs Irene
Beggs, Roy


Ainger, Nick
Beith, Rt Hon A. J.


Ainsworth, Robert (Cov'try NE)
Bell, Stuart


Allen, Graham
Benn, Rt Hon Tony


Alton, David
Bennett, Andrew F.


Anderson, Donald (Swansea E)
Benton, Joe


Anderson, Ms Janet (Ros'dale)
Berry, Dr. Roger


Armstrong, Hilary
Betts, Clive


Ashton, Joe
Blair, Tony


Austin-Walker, John
Blunkett, David


Barnes, Harry
Boateng, Paul


Barron, Kevin
Boyce, Jimmy


Battle, John
Boyes, Roland





Bradley, Keith
Hogg, Norman (Cumbernauld)


Brown, Gordon (Dunfermline E)
Hood, Jimmy


Brown, N. (N'c'tle upon Tyne E)
Hoon, Geoffrey


Bruce, Malcolm (Gordon)
Howarth, George (Knowsley N)


Burden, Richard
Howells, Dr. Kim (Pontypridd)


Byers, Stephen
Hoyle, Doug


Callaghan, Jim
Hughes, Kevin (Doncaster N)


Campbell, Mrs Anne (C'bridge)
Hughes, Robert (Aberdeen N)


Campbell, Ronnie (Blyth V)
Hutton, John


Campbell-Savours, D. N.
Illsley, Eric


Canavan, Dennis
Jackson, Glenda (H'stead)


Cann, Jamie
Jackson, Helen (Shef'ld, H)


Chisholm, Malcolm
Jamieson, David


Clark, Dr David (South Shields)
Janner, Greville


Clarke, Eric (Midlothian)
Jones, Barry (Alyn and D'side)


Clarke, Tom (Monklands W)
Jones, Ieuan Wyn (Ynys Môn)


Clelland, David
Jones, Jon Owen (Cardiff C)


Clwyd, Mrs Ann
Jones, Lynne (B'ham S O)


Connarty, Michael
Jones, Martyn (Clwyd, SW)


Cook, Frank (Stockton N)
Jones, Nigel (Cheltenham)


Cook, Robin (Livingston)
Jowell, Tessa


Corston, Ms Jean
Kaufman, Rt Hon Gerald


Cousins, Jim
Keen, Alan


Cryer, Bob
Kennedy, Charles (Ross, C&S)


Cunningham, Jim (Covy SE)
Kennedy, Jane (Lpool Brdgn)


Cunningham, Rt Hon Dr John
Khabra, Piara S.


Dafis, Cynog
Kilfoyle, Peter


Darling, Alistair
Kinnock, Rt Hon Neil (Islwyn)


Davidson, Ian
Kirkwood, Archy


Davies. Bryan (Oldham C'tral)
Leighton, Ron


Davies, Rt Hon Denzil (Llanelli)
Lestor, Joan (Eccles)


Davies, Ron (Caerphilly)
Lewis, Terry


Denham, John
Livingstone, Ken


Dewar, Donald
Lloyd, Tony (Stretford)


Dixon, Don
Llwyd, Elfyn


Dobson, Frank
Loyden, Eddie


Donohoe, Brian H.
Lynne, Ms Liz


Dowd, Jim
McAllion, John


Dunnachie, Jimmy
McAvoy, Thomas


Dunwoody, Mrs Gwyneth
McCartney, Ian


Eagle, Ms Angela
Macdonald, Calum


Eastham, Ken
McFall, John


Enright, Derek
McGrady, Eddie


Etherington, Bill
McKelvey, William


Evans, John (St Helens N)
Mackinlay, Andrew


Ewing, Mrs Margaret
McLeish, Henry


Fatchett, Derek
Maclennan, Robert


Faulds, Andrew
McMaster, Gordon


Field, Frank (Birkenhead)
Madden, Max


Fisher, Mark
Mahon, Alice


Flynn, Paul
Mandelson, Peter


Foster, Rt Hon Derek
Marek, Dr John


Foster, Don (Bath)
Marshall, David (Shettleston)


Foulkes, George
Marshall, Jim (Leicester, S)


Fraser, John
Martin, Michael J. (Springburn)


Fyfe, Maria
Martlew, Eric


Galbraith, Sam
Maxton, John


Gapes, Mike
Meacher, Michael


Garrett, John
Meale, Alan


Gerrard, Neil
Michael, Alun


Gilbert, Rt Hon Dr John
Michie, Bill (Sheffield Heeley)


Godsiff, Roger
Michie, Mrs Ray (Argyll Bute)


Golding, Mrs Llin
Milburn, Alan


Gordon, Mildred
Miller, Andrew


Gould, Bryan
Mitchell, Austin (Gt Grimsby)


Graham, Thomas
Moonie, Dr Lewis


Grant, Bernie (Tottenham)
Morgan, Rhodri


Griffiths, Nigel (Edinburgh S)
Morley, Elliot


Griffiths, Win (Bridgend)
Morris, Rt Hon A. (Wy'nshawe)


Grocott, Bruce
Morris, Estelle (B'ham Yardley)


Gunnell, John
Morris, Rt Hon J. (Aberavon)


Hain, Peter
Mullin, Chris


Hall, Mike
Murphy, Paul


Hanson, David
Oakes, Rt Hon Gordon


Harman, Ms Harriet
O'Brien, Michael (N W'kshire)


Harvey, Nick
O'Hara, Edward


Henderson, Doug
Olner, William


Heppell, John
O'Neill, Martin


Hill, Keith (Streatham)
Orme, Rt Hon Stanley


Hinchliffe, David
Parry, Robert






Pendry, Tom
Smith, Llew (Blaenau Gwent)


Pickthall, Colin
Soley, Clive


Pike, Peter L.
Spearing, Nigel


Pope, Greg
Spellar, John


Powell, Ray (Ogmore)
Steel, Rt Hon Sir David


Prentice, Ms Bridget (Lew'm E)
Steinberg, Gerry


Prentice, Gordon (Pendle)
Stevenson, George


Prescott, John
Strang, Dr. Gavin


Primarolo, Dawn
Taylor, Matthew (Truro)


Purchase, Ken
Tipping, Paddy


Quin, Ms Joyce
Turner, Dennis


Randall, Stuart
Tyler, Paul


Reid, Dr John
Vaz, Keith


Robertson, George (Hamilton)
Walker, Rt Hon Sir Harold


Robinson, Geoffrey (Co'try NW)
Wallace, James


Roche, Mrs. Barbara
Wardell, Gareth (Gower)


Rogers, Allan
Wareing, Robert N


Rooker, Jeff
Watson, Mike


Rooney, Terry
Wicks, Malcolm


Ross, Ernie (Dundee W)
Wigley, Dafydd


Rowlands, Ted
Williams, Rt Hon Alan (Sw'n W)


Ruddock, Joan
Williams, Alan W (Carmarthen)


Salmond, Alex
Wilson, Brian


Sedgemore, Brian
Winnick, David


Sheerman, Barry
Wise, Audrey


Sheldon, Rt Hon Robert
Worthington, Tony


Shore, Rt Hon Peter
Wray, Jimmy


Short, Clare
Wright, Dr Tony


Simpson, Alan
Young, David (Bolton SE)


Skinner, Dennis



Smith, Andrew (Oxford E)
Tellers for the Ayes:


Smith, C. (Isl'ton S & F'sbury)
Mr. Simon Hughes and Mr. Andrew Welsh.


Smith, Rt Hon John (M'kl'ds E)





NOES


Ainsworth, Peter (East Surrey)
Clarke, Rt Hon Kenneth (Ruclif)


Aitken, Jonathan
Clifton-Brown, Geoffrey


Alison, Rt Hon Michael (Selby)
Coe, Sebastian


Allason, Rupert (Torbay)
Colvin, Michael


Amess, David
Congdon, David


Ancram, Michael
Conway, Derek


Arbuthnot, James
Coombs, Anthony (Wyre For'st)


Arnold, Jacques (Gravesham)
Coombs, Simon (Swindon)


Arnold, Sir Thomas (Hazel Grv)
Cope, Rt Hon Sir John


Ashby, David
Couchman, James


Aspinwall, Jack
Cran, James


Atkinson, Peter (Hexham)
Currie, Mrs Edwina (S D'by'ire)


Baker, Rt Hon K. (Mole Valley)
Curry, David (Skipton & Ripon)


Baker, Nicholas (Dorset North)
Davies, Quentin (Stamford)


Baldry, Tony
Davis, David (Boothferry)


Banks, Matthew (Southport)
Day, Stephen


Banks, Robert (Harrogate)
Deva, Nirj Joseph


Bates, Michael
Dickens, Geoffrey


Batiste, Spencer
Dicks, Terry


Bellingham, Henry
Dorrell, Stephen


Bendall, Vivian
Douglas-Hamilton, Lord James


Beresford, Sir Paul
Dover, Den


Blackburn, Dr John G.
Duncan, Alan


Booth, Hartley
Duncan-Smith, Iain


Boswell, Tim
Dunn, Bob


Bottomley, Peter (Eltham)
Dykes, Hugh


Bowis, John
Eggar, Tim


Boyson, Rt Hon Sir Rhodes
Elletson, Harold


Brandreth, Gyles
Emery, Rt Hon Sir Peter


Brazier, Julian
Evans, David (Welwyn Hatfield)


Bright, Graham
Evans, Jonathan (Brecon)


Brooke, Rt Hon Peter
Evans, Nigel (Ribble Valley)


Brown, M. (Brigg & Cl'thorpes)
Evans, Roger (Monmouth)


Browning, Mrs. Angela
Evennett, David


Budgen, Nicholas
Faber, David


Burns, Simon
Fabricant, Michael


Burt, Alistair
Fairbairn, Sir Nicholas


Butler, Peter
Field, Barry (Isle of Wight)


Carlisle, John (Luton North)
Fishburn, Dudley


Carlisle, Kenneth (Lincoln)
Forman, Nigel


Carrington, Matthew
Forsyth, Michael (Stirling)


Channon, Rt Hon Paul
Forth, Eric


Churchill, Mr
Fowler, Rt Hon Sir Norman


Clappison, James
Fox, Dr Liam (Woodspring)


Clark, Dr Michael (Rochford)
Fox, Sir Marcus (Shipley)





Freeman, Roger
McNair-Wilson, Sir Patrick


French, Douglas
Madel, David


Fry, Peter
Maitland, Lady Olga


Gale, Roger
Malone, Gerald


Gallie, Phil
Mans, Keith


Gardiner, Sir George
Marland, Paul


Garel-Jones, Rt Hon Tristan
Marlow, Tony


Garnier, Edward
Marshall, John (Hendon S)


Gill, Christopher
Martin, David (Portsmouth S)


Gillan, Cheryl
Merchant, Piers


Goodlad, Rt Hon Alastair
Milligan, Stephen


Goodson-Wickes, Dr Charles
Mitchell, Andrew (Gedling)


Gorman, Mrs Teresa
Moate, Sir Roger



Gorst, John
Monro, Sir Hector


Greenway, Harry (Ealing N)
Montgomery, Sir Fergus


Greenway, John (Ryedale)
Moss, Malcolm


Griffiths, Peter (Portsmouth, N)
Needham, Richard


Grylls, Sir Michael
Nelson, Anthony


Gummer, Rt Hon John Selwyn
Neubert, Sir Michael


Hague, William
Newton, Rt Hon Tony


Hamilton, Rt Hon Archie (Epsom)
Nicholls, Patrick


Hamilton, Neil (Tatton)
Nicholson, David (Taunton)


Hanley, Jeremy
Nicholson, Emma (Devon West)


Hannam, Sir John
Norris, Steve


Hargreaves, Andrew
Onslow, Rt Hon Sir Cranley


Harris, David
Oppenheim, Phillip


Haselhurst, Alan
Ottaway, Richard


Hawkins, Nick
Page, Richard


Hawksley, Warren
Paice, James


Hayes, Jerry
Patnick, Irvine



Heald, Oliver
Patten, Rt Hon John


Heath, Rt Hon Sir Edward
Pattie, Rt Hon Sir Geoffrey


Heathcoat-Amory, David
Pawsey, James


Hendry, Charles
Peacock, Mrs Elizabeth


Heseltine, Rt Hon Michael
Pickles, Eric


Hicks, Robert
Porter, David (Waveney)


Higgins, Rt Hon Sir Terence L.
Portillo, Rt Hon Michael


Hill, James (Southampton Test)
Powell, William (Corby)


Horam, John
Redwood, John


Hordern, Rt Hon Sir Peter
Renton, Rt Hon Tim



Howard, Rt Hon Michael
Richards, Rod


Howarth, Alan (Strat'rd-on-A)
Riddick, Graham


Howell, Rt Hon David (G'dford)
Rifkind, Rt Hon. Malcolm


Hughes Robert G. (Harrow W)
Robathan, Andrew


Hunt, Rt Hon David (Wirral W)
Roberts, Rt Hon Sir Wyn


Hunter, Andrew
Robertson, Raymond (Ab'd'n S)


Hurd, Rt Hon Douglas
Robinson, Mark (Somerton)


Jack, Michael
Roe, Mrs Marion (Broxbourne)


Jackson, Robert (Wantage)
Rowe, Andrew (Mid Kent)


Jenkin, Bernard
Rumbold, Rt Hon Dame Angela


Jessel, Toby
Ryder, Rt Hon Richard


Johnson Smith, Sir Geoffrey
Sackville, Tom


Jones, Gwilym (Cardiff N)
Sainsbury, Rt Hon Tim


Jones, Robert B. (W Hertfdshr)
Scott, Rt Hon Nicholas


Jopling, Rt Hon Michael
Shaw, David (Dover)


Kellett-Bowman, Dame Elaine
Shaw, Sir Giles (Pudsey)


Key, Robert
Shephard, Rt Hon Gillian


Kilfedder, Sir James
Shepherd, Richard (Aldridge)


King, Rt Hon Tom
Shersby, Michael


Knapman, Roger
Sims, Roger


Knight, Mrs Angela (Erewash)
Skeet, Sir Trevor


Knight, Greg (Derby N)
Smith, Tim (Beaconsfield)


Knight, Dame Jill (Bir'm E'st'n)
Soames, Nicholas


Knox, David
Spencer, Sir Derek


Kynoch, George (Kincardine)
Spicer, Sir James (W Dorset)


Lait, Mrs Jacqui
Spicer, Michael (S Worcs)


Lamont, Rt Hon Norman
Spink, Dr Robert


Lawrence, Sir Ivan
Spring, Richard


Legg, Barry
Sproat, Iain


Lidington, David
Squire, Robin (Hornchurch)


Lightbown, David
Stanley, Rt Hon Sir John


Lilley, Rt Hon Peter
Steen, Anthony


Lloyd, Peter (Fareham)
Stephen, Michael


Lord, Michael
Stern, Michael


Luff, Peter
Stewart, Allan


Lyell, Rt Hon Sir Nicholas
Streeter, Gary


MacGregor, Rt Hon John
Sumberg, David


MacKay, Andrew
Sweeney, Walter


Maclean, David
Sykes, John



McLoughlin, Patrick
Tapsell, Sir Peter






Taylor, Ian (Esher)
Watts, John


Taylor, John M. (Solihull)
Wells, Bowen


Taylor, Sir Teddy (Southend, E)
Wheeler, Rt Hon Sir John


Temple-Morris, Peter
Whitney, Ray


Thomason, Roy
Whittingdale, John


Thompson, Patrick (Norwich N)
Widdecombe, Ann


Thornton, Sir Malcolm
Wiggin, Sir Jerry


Thurnham, Peter
Wilkinson, John


Townsend, Cyril D. (Bexl'yh'th)
Willetts, David


Tracey, Richard
Wilshire, David


Tredinnick, David
Winterton, Mrs Ann (Congleton)


Trend, Michael
Winterton, Nicholas (Macc'f'ld)


Trotter, Neville
Wolfson, Mark


Twinn, Dr Ian
Wood, Timothy


Viggers, Peter
Yeo, Tim


Waldegrave, Rt Hon William
Young, Sir George (Acton)


Walden, George



Walker, Bill (N Tayside)
Tellers for the Noes:


Waller, Gary
Mr. Sydney Chapman and Mr. Timothy Kirkhope.


Wardle, Charles (Bexhill)



Waterson, Nigel

Question accordingly negatived.

Clause 183 ordered to stand part of the Bill.

Clause 48

BAD DEBTS

8 pm

Mr. Andrew Smith: I beg to move amendment No. 41, in page 29, line 32, leave out 'six' and insert 'three'.
The purpose of the amendment is to allow businesses to recover more quickly the output VAT that they accounted for when making supply to a customer where the debt proves to be bad. It provides the opportunity for us to discuss more generally the extent of bad debt and its serious consequences for small businesses in particular, which make the measure all the more necessary.
Let me make it clear at the outset that we welcome the fact that the clause proposes to reduce the waiting period from one year to six months, which will be of benefit to businesses large and small. As firms that are not in the cash accounting scheme for VAT—I shall return to that scheme in due course—become liable for VAT when they send out invoices, but only get the money back when their customers pay them, which in some cases is never, the provisions have serious consequences for business cash flows.
We believe that, given the comment before the Budget —for example, in the Financial Times of 8 March speculating on the benefit of immediate relief on bad debt, given that the CBI was calling for relief on bad debt to be immediately available when provision is made in the traders' account—we feel that the Government may be being unnecessarily cautious in moving only to six months and we should like to press the case for three months instead. That would give a cash flow benefit to small businesses in addition to that estimated by the Chancellor in the Budget.
Such a measure is especially important at a time when bankruptcies are running at such a high level. Dun and Bradstreet reports that in the first quarter of this year there were no fewer than 15,443 businesses collapsing—a 3·8 per cent. increase on the same period last year. In those circumstances, bad debts themselves become a principal cause of business failure. There is a vicious circle. Firms that do not receive payment find it increasingly difficult to meet their own debts. That compounds the problem and if

such firms are not themselves pitched into bankruptcy or liquidation—as, sadly, many are—they are at the very least more likely to join the legions of late payers, stoking up the overall burden of corporate debt overhang, itself aggravated by high real interest rates, which make forced inter-company credit the borrowing of first resort. That exerts financial stress throughout the business network to the point where those unlucky or adventurous enough to be the weakest links in the chain then break, with knock-on consequences all round.
I think that it is now generally acknowledged that that is an extremely serious problem, not only in the United Kingdom but, as Michael Cassell reported in the Financial Times of 23 February, throughout the European Community, where the problem has become steadily worse as the recession has deepened. Michael Cassel reported the Association of British Factors and Discounters estimate of the time taken for European companies to pay as having increased by on average no less than one third in 1992. That is borne out by a disturbing report in today's Financial Times. Apparently, a survey by NCM Credit Insurance shows that
One in five UK companies lost money as a result of non-payment by an EC customer in the year ended March 1993, compared with one in eight in the year to March 1989.
Clearly, that augurs badly for British companies looking to the EC for business which Britain so desperately needs given the yawning balance of payments deficit.
All of that places a very real premium on the help that the Government can give as regards domestic late payments and VAT on bad debts. After all, in both cases, firms are merely trying to get back more quickly the money that is due to them.
We welcome the CBI prompt payers' code and hope that the CBI is successful in getting a much larger proportion of its membership to sign up to it. We believe, too, that the Government should be setting an example both in public sector payments and through their readiness to legislate where that would be of benefit.
It is an absolute disgrace that the Property Services Agency, being fattened up for privatisation, was revealed by the Public Accounts Committee to be making contractors wait months for payment because of delays by the Ministry of Defence in paying it. The Guardian obtained an internal PSA newsletter called "Paid when Paid", which revealed that the Minister for Local Government and Inner Cities, no less, was expecting companies to wait 44 days for payment in connection with defence, prison, courts and royal palace contracts, in contravention of the 30-day maximum target that the Chancellor of the Exchequer set in his Budget last year.
It is not enough for the Government simply to require Departments to publish details of their payments performance in their departmental reports. Although that is all well and good in itself, it does not give any immediate incentive to recalcitrant Departments, nor does it offer redress to contractors waiting for bills to be paid by those Departments. As the Government operate a system of penalties for businesses that are late in paying their VAT, why not apply a system of penalties—perhaps precisely the same penalties—to Government Departments that are late in paying their bills to businesses?
If that were brought in as an automatic supplement to which the trader would have a legal right, it would not only be seen to be fair but would offer some automatic compensation to the trader, would set a good example and


would concentrate minds wonderfully in the Department concerned. It would show that the Government were prepared to match their words, which are cheap, with actions which might not be so cheap. I am sure that it would be welcomed by the business community.
The other important question to which the debate gives rise is why more small businesses do not take advantage of the cash accounting scheme which enables smaller businesses to account for VAT on the basis of payments received and made rather than the usual liability on the basis of invoices issued and received.
The Customs and Excise press notice issued on 16 March estimated that only about 40 per cent. of those traders who could benefit from the scheme were doing so. So although the announcement in the Budget that the threshold for eligibility for the scheme is to be raised from £300,000 to £350,000 and entry is to be made easier is to be welcomed, if small businesses are to derive the full benefit of the scheme and thereby escape the perils of late payment, we need to be assured that early action is in prospect on the outcome of the consultation exercise that is under way. I should be grateful if the Minister could tell us how soon the Government expect to be able to implement measures to improve take-up and ease of entry to the scheme.
I should be grateful if the Paymaster General could tell us whether any specific effort has been made to survey the 60 per cent. of eligible businesses to find out why they are not using the system. That is an obvious step to take. It may well be that the answer to that question—why businesses are not using the scheme—which does not appear on the Customs and Excise consultation paper on the operation of the scheme, is pertinent and the right route to finding a way towards higher take-up and thereby more benefits to small businesses in Britain.
Small businesses have been going through a difficult time. The VAT regime is often experienced as a real headache, making things harder for business rather than easier. We do not dispute that there are a number of measures in the Finance Bill that will help small businesses. We advocated those measures, and they are to be welcomed.
The Government need to accept that there is a long way to go as far as small businesses are concerned. That was underlined in a timely fashion by the publication today of a report by Grant Thornton which surveyed the opinions on economic prospects of small and medium-sized enterprises across the European Community. The report makes sorry reading. When such reports are published, it is important to underline that they do not tell the whole story about Britain's small businesses—many of them are thriving against all the odds. Labour Members certainly have no interest in talking down prospects for our small firms—we acknowledge that many are doing well.
The survey shows that many small businesses are gloomy about their prospects. The Press Association report on the survey says:
Britain's small and medium-sized businesses are among the gloomiest in the EC about future prospects … there is pessimism about turnover, employment and investment—and Britain is the only country where research and development spending is expected to fall. It also has the weakest forecast for spending on training".

The survey, which covered 5,000 businesses throughout the Community, underlines the severity of the problems which firms in Britain and elsewhere in the Community face with late payments. There seemed to be vulnerability to pressures on finance arising from the problem of late payers.
The widening skills gap is underlined in the report. That is one area where the United Kingdom comes out badly. It is bad news at a time when small businesses in Britain need help with upskilling their employees and with the advice available to the management of small firms. Another relevant outcome of the survey is that the size of management teams in small firms in Britain is, on average, much greater than that of their European competitors. That inevitably means that a higher proportion of costs is spent on management, with a consequent undermining of competitiveness.
The findings of the survey bear out everything that the Labour party has been saying about the need for the British economy to have more investment in infrastructure and skills and more support for our small businesses. The Paymaster General should tell the Committee what action the Government will take on the findings of the survey. He should also respond to the question which he did not have an opportunity to answer in the turmoil and somewhat torrid time that he was having at the end of yesterday's debate: what will be the effect of the increase in VAT on small firms—those businesses that people have started from home which are not paying any VAT on their fuel at present because they do not use more than 40 per cent. of their fuel consumption for business purposes? The imposition of VAT on fuel will hit those small businesses. The Paymaster General owes the Committee an explanation as to how the Government can possibly impose that measure on those businesses. He also owes the firms involved an apology.
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If the Government want small businesses to thrive, they must take action. As I suggested, they need to act to improve the overall economic position and climate that small businesses face. They also need to act specifically with regard to the consequences of bad debts for creditor firms. There are other provisions in the Bill with regard to small businesses, and we shall have a good deal to say about them—notably, the provisions relating to the VAT penalty regime and the right of recourse to VAT tribunals.
The Government need to take action to tackle the underlying causes which are giving rise to escalating bad debts. Those causes are fundamentally to be found in the consequences of recession and the fragility of recovery which still sees 1,200 businesses going under every week. Unemployment still casts an unacceptably long shadow over prospects for business recovery because of the greatly depressed purchasing power of the unemployed and because the fear of unemployment continues to corrode general confidence. Labour Members must stress the importance of tackling the causes of business failure and bad debt as well as the symptoms.
Small businesses add up to big business and they deserve every support. Labour's policies to that end are being developed further in consultation with small businesses. The key elements on which the construction of a supportive framework for small businesses need to focus


were spelt out by my hon. Friend the Member for Leeds, Central (Mr. Fatchett) in a speech to the Small Business Development conference in April.
Those elements are, first, finance—the need to free small businesses from dependency on short-term and expensive finance and from excessive exposure to personal risk by encouraging longer-term financial support and an equity share on the part of banks. Secondly, there must be improved advice and encouragement for the development of managerial skills. I have already referred to that matter in the context of the Grant Thornton survey. Thirdly, there must be better support for technology transfer, technological innovation and bringing new ideas to the market place. We believe that, with a supportive fiscal framework and a proper overall strategy for economic growth, infrastructure, investment and training, small businesses will have an even more important role to play in securing Britain's economic recovery and sustainable prosperity.
With regard to the specific provisions in clause 48, a further reduction, to three months, in the elapsed time for eligibility for VAT bad debt relief would give more help to the cash flow of many businesses, thereby staunching job losses and boosting confidence and recovery. I commend the amendment to the Committee.

The Paymaster General (Sir John Cope): It might be helpful to the Committee if I intervene at this point to talk specifically about clause 48 and the amendment. The hon. Member for Oxford, East (Mr. Smith) ranged a good deal wider than that to other subjects relating to small businesses. I may refer to some of those wider aspects at the end of the debate if I have a further opportunity.
The Committee will appreciate that the Government have given a good deal of attention to the problems of VAT and small businesses, especially in relation to bad debts, over the past year that I have been doing this job and, indeed, under my predecessor. I have long been involved in the support of small businesses. I am anxious to ensure that VAT is fairly operated and takes account of the difficulties of businesses, especially cash flow difficulties.
Customs and Excise has experienced increased bad debts in the form of VAT arrears. That is not surprising in a time of recession. The House may have seen from the Customs and Excise annual report covering the last fiscal year, which was published not long ago, that arrears increased, in spite of some special measures, from 4·2 to 4·4 per cent. The Public Accounts Committee has rightly and fairly criticised those arrears.
It is essential, if we are to be fair to those who pay their VAT on time, that we collect the VAT due from their competitors as promptly as possible. It is not fair to the majority for us to allow a minority to postpone their obligations, particularly in cases where the trader has collected the VAT from his own customers—I am thinking especially of retail businesses—and then fails to hand it over to the Customs and Excise when it is due.
Conversely, we also recognise the problems of some traders, especially when they have not been paid by their customers. That is the problem to which the clause is directed. As the hon. Member for Oxford, East correctly said, my right hon. Friend the Chancellor of the Exchequer has taken two specific measures in the Budget

to help people in that position. First, he has widened and improved the cash accounting scheme. Secondly, he has made bad debts easier to write off for VAT purposes.
The promised improvements in the cash accounting scheme can be put in place by order and administrative action. They do not require clauses in the Finance Bill. So there will not be an opportunity to mention them at another stage. The threshold has been raised to a turnover of £350,000 per annum. Traders whose turnover rises up to 25 per cent. above that can remain in the scheme until they come out of the top end. All that takes place under the VAT (Cash Accounting) (Amendment) Regulations 1993, which took effect on 1 April 1993.
Not only that statistical change has occurred. We have also made changes to the arrangements for the scheme so that any trader whose turnover is below the new threshold can automatically use the cash accounting system without having to apply for and receive approval, as he previously did. Clearly, if it turns out that he was not eligible, he has to put the matter right later. We have tried to get rid of the bureaucracy involved in signing up to the cash accounting scheme.
The hon. Member for Oxford, East asked me about the consultation with the trade organisations, which is now in progress. We have asked for responses to the consultation by 31 May. We shall consider carefully the responses that we receive as soon as possible thereafter.
We have done a certain amount to publicise the cash accounting scheme especially to new traders. The packs for new traders include advertisements explaining the scheme and the other schemes available to traders. Further details are offered to anyone who is interested to know more. We have drawn the scheme to the attention of practitioners, banks and so on, so that they can advise clients about the scheme and tell them to take advantage of it, if it is desirable and if they wish to do so. We have conducted various exercises to publicise the scheme among traders who might wish to benefit from it.
The hon. Member for Oxford, East mulled over why more traders who, on paper, are eligible for the scheme do not take it up. When one ponders the matter one sees that there are some fairly obvious reasons why some do not choose to take up the scheme. First, the retail schemes and other related schemes for retailers are better for some small businesses. It is not necessary for them to take up the cash accounting scheme to obtain similar benefits or benefits that they consider more desirable in making their arrangements for VAT. For some traders who take cash over the counter, there is no advantage in the cash accounting scheme in dealing with bad debts.
If one does business for cash, by definition one does not have any bad debts—unless one takes some dud notes—so some people do not become involved in the cash accounting scheme. It may be better for some traders from the input point of view not to be in the cash accounting scheme, depending how promptly they pay their suppliers and whether supplies are provided on credit.
Some traders find that the Inland Revenue cash accounting scheme does not blend as easily as it might with the VAT cash accounting scheme. They prefer not to be involved in the VAT scheme for that reason. Some additional accounting is required to keep the accounts on the basis that we require—necessarily, I believe—so that we can operate the scheme with due regard to the revenue.
Apart from the cash accounting scheme, which is highly desirable and which we have improved and extended in the


Budget, my right hon. Friend and I were also anxious to improve the position of those who have bad debts and are VAT traders. That is the reason for clause 48 and the provisions that we are considering.
The present scheme was introduced by section 11 of the Finance Act 1990. Before then, there was a scheme of VAT relief for bad debts. It depended on the formal insolvency of the debtor. That led to difficulties. Apart from anything else, it provided a VAT incentive to traders to go through the formal insolvency procedures to get back the VAT, and for no other reason. That was correctly regarded as an unnecessary incentive to go through the formal insolvency procedures. That was partly why the new scheme was introduced in the Finance Act 1990.
Initially, the cash accounting scheme provided eligibility for relief on all debts in respect of supplies that were made after 1 April 1989 which were two years old and were written off in the trader's accounts.
A clawback provision still exists in respect of belated payments received by claimants. A debt may be regarded as bad at a certain time, but the trader may still chase it and he may succeed in getting some of the money back. We would obviously need to recover the VAT in that case.
The waiting period was reduced from two years to one year before the scheme came into full effect under section 15 of the Finance Act 1991. The new scheme has been generally welcomed and it has been discussed in the House and in Committee on a number of occasions. Representations have been made, however, from professional and business organisations and individuals about the fact that the waiting period is too long. Given the recession, those representations have had greater validity because of the cash flow problems that have thus been caused. We have responded to those representations with the proposal in the Bill to reduce the waiting period from one year to six months.
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The decision to halve the waiting period is a reflection of the attention paid to the representations made and significantly enhances a scheme that has already led to a major improvement for businesses chasing bad debts. The one-year cost of the scheme—it is only one year because the scheme brings forward the time at which bad debts are written off—is estimated at £150 million. In other words, the cash flow of those businesses affected by bad debt has been improved by £150 million as a result of the Government's efforts in the current financial year.
The hon. Member for Oxford, East has suggested that we should reduce the waiting period from six months to three months, but I do not believe that it would be wise to pursue that proposal. If it is possible to write off a bad debt too soon after that debt is incurred, the necessary provisions will become unduly bureaucratic and difficult. The necessary clawback of debts paid after the end of the proposed 90-day period would increase considerably.
We must remember that different types of businesses use different credit arrangements. Credit of 90 days is not unusual in some lines of business. If the amendment of the hon. Member for Oxford, East were accepted, it would mean that every debt that was more than one day or a week outstanding after 90 days could be written off for VAT. That VAT would then need to be clawed back at a later date.
I should make it clear that any waiting period, be it six months or, were we to accept the amendment, which I do not recommend, three months, runs from the day of supply. It runs from when the goods are delivered and the invoice arrives. The period does not run from when the credit allowed by the supplier has expired. I do not believe that VAT should be written off as early as three months after the date of supply, because that would add to the control problems of Customs and Excise when managing write-offs. It is necessary to establish that a debt is genuinely bad. Just because someone has been a bit dilatory in coming up with the money does not make for a bad debt. That is why the waiting period of six months is appropriate.

Mr. Andrew Smith: Why is it more difficult to validate that the debt is a genuine bad debt when it is reclaimed after three months rather than after six? Surely the same evidence will be available for the VAT inspectors.
The right hon. Gentleman referred to the increased bureaucracy that that shorter period would impose on a business. I certainly do not see why the VAT inspectors or businesses should be subject to any more bureaucracy. If a business wanted to operate a 90-day or an even longer credit system, it would have that choice under our proposals. It would be up to businesses to decide whether to reclaim VAT after three months, six months or longer. Although our amendment would enable businesses to make a claim after three months, it would not preclude them, from choice, from deciding to wait longer, if they operate an extended system of credit. Surely our amendment gives business more choice than the right hon. Gentleman has tried to suggest.

Sir John Cope: Yes, in some senses it does, but a business will have to decide whether to place itself at a disadvantage in comparison with some of its competitors by not reclaiming the VAT as soon as it could, as proposed under the hon. Gentleman's amendment. At the same time, a business would have to be sure that it got its clawback right. From our point of view and that of Customs and Excise, we would also need to try to be sure that no bad debt that had been written off at the end of three months had not been paid afterwards. From a technical point of view, that is quite a difficult thing to do. I speak as a former auditor who had to go over transactions and find out what happened. Sometimes it is difficult to be certain that a debt has not been paid belatedly.
The hon. Member for Oxford, East picked up my phrase about validating a debt as genuinely bad. There is no validation of the kind to which he referred, for example through the production of some documents to demonstrate that a debt is bad. The only validation that is required under the scheme is the length of time during which the debt has been in existence; in other words, from the date of supply until the six months period has expired. Providing that the debt has been outstanding for six months, no further validation in terms of documents is required.
For the scheme to be simple and easy to operate from the point of view of the trader and Customs and Excise, it is wise that a simple period of time should elapse. That provides reasonable protection and it is not necessary to


provide further validation. That is why I believe that the period should be set at six months as opposed to three months.
At the time of the review of bad debt relief in 1988, when the scheme was introduced, an extensive consultation exercise was undertaken. Most of those who replied accepted the need for a waiting period and their views on the length of that period ranged from a maximum of two years, which is what the Government then introduced, to a minimum of six months. At that stage, no one requested a waiting period of three months and there has been no pressure for it since.
The expressed wish of those who were consulted is met by clause 48. To guard against the danger of fraudulent abuse, particularly by associated companies and connected persons—we must always think about those who would try to use, for fraudulent reasons, provisions in the tax law that were introduced for genuine reasons—six months is the right waiting period for the scheme.
The hon. Member for Oxford, East referred to quite a number of other, wider matters. I may respond to them more fully later, if time allows. In connection with the late payment of debt and the Government's own position, Government accounting now requires Departments to pay bills promptly in accordance with the terms of the contract or within 30 days of the receipt of goods and services or presentation of a valid invoice, whichever is the later, if no other terms are specified.
The Chancellor announced in his 1992 Budget that prime contractors to Government Departments would in future be required to include in their contracts with sub-contractors a clause committing them to pay promptly. The hon. Member for Oxford, East referred to some of the difficulties encountered in introducing and enforcing that provision across the public sector. New arrangements are being introduced by, for example, the Property Services Agency Building Management businesses to ensure that sub-contractors are paid promptly, within 30 days of the validation of the invoice.
A recent survey, to which the hon. Gentleman may have referred indirectly, by the Heating and Ventilating Contractors Association suggested a poor performance by the PSA. It predated the new arrangements and does not reflect their effect. There have been reports in answer to parliamentary questions on the performance of individual Departments, and they show that in 80 to 90 per cent. of cases the majority of Departments are already within the new arrangements, but it is only 12 months since their introduction and we are trying to improve the performance of individual Departments. As the hon. Gentleman himself mentioned, we are giving information on payment performance in departmental reports as well as in comprehensive parliamentary answers.
The hon. Gentleman also referred to an interesting report in this morning's Financial Times about a Grant Thornton survey of small and medium enterprises and their prospects in the European Community. I also noticed that report and have asked to see particulars of the survey. We will consider it carefully and see what lessons it has for us and what we should do, if anything, to address the problems that it throws up, on my side at least, as far as VAT is concerned. There may be wider lessons for other parts of Government.
In the early stages of what I had to say I referred to the problems of bad debt for both traders and Customs and Excise in a time of cash flow difficulties for us both, and the

necessity of addressing those difficulties, particularly where small firms are concerned. The hon. Member for Oxford, East expressed a strong belief in small businesses and in the bigger part that they will play—bigger even than in recent years—in the recovery from recession to future economic prosperity.
I am glad to have been associated with the small business lobby in the House since before I even became an hon. Member, and I am very glad that small businesses have been able to contribute so much to the economy in the past decade. I am particularly pleased that the Labour party has come round so strongly to the support of small businesses and that it is promoting ideas such as the hon. Gentleman has put forward today to encourage them to build up. Although not earth-shattering, the clause is an important step in that direction, as are the changes in the cash accounting scheme introduced in the Budget by my right hon. Friend the Chancellor. I commend the clause to the Committee, but, for the reasons that I have given, I do not recommend that the Committee goes as far as to insert "three months" into the Bill.

Mr. Peter Mandelson: The importance of the amendment that Opposition Members are putting forward is that it allows us to focus on the problems of late payment and bad debt facing many of Britain's 5 million small businesses and to consider the proposed changes to the VAT regime designed to ameliorate the problems that small businesses experience, especially when firms have already paid VAT on moneys owing to them that have become bad debts. No hon. Member will have been left unaware of the problems and demands of small businesses. I certainly have not, since I was elected last year. Many feel as if they are running not only their own businesses but a separate business dealing with the VAT inspectors, the paperwork, the bureaucracy and the appeals that are involved.
Many experience and complain about the often punitive fines which they incur and which equal the earnings in a given week. No doubt VAT men and women are badly misunderstood people, but it must be recognised that many are viewed as tyrants by the small business people who have to deal with the VAT authorities, and it behoves us hon. Members to try to do all that we can to build a bridge between the oppressed and the oppressors. Clause 48 represents the latest attempt to help small businesses by changing the VAT bad debt regulations by making VAT relief on bad debts more readily available. Although it is to be welcomed, it is only part of what is necessary to give greater support to the small business sector. The importance of the small business sector for the British economy has already been stressed. Ninety-five per cent. of all businesses in the United Kingdom employ fewer than 20 people. About half the work force—11 million people—work in small firms. Small firms contribute more than a quarter of the nation's gross domestic product. Small firms have rightly been called the engine room of Britain's economy, and since the war it is small businesses that have provided the fastest growth, the greatest job creation and the most dynamic technological innovation. Their needs are, therefore, a priority for our attention, and recognition of their needs crosses party boundaries and makes absolutely futile the argument that some like to have about whether their party is more


pro-small firm than the other. I was grateful for the Paymaster General's commendation of the strong support that the modern Labour party gives to small businesses.
In the light, however, of what the Paymaster General said, I was amazed to read, prior to this debate, a debate on 13 November 1992 on small and medium-sized enterprises, initiated by the hon. Member for Colchester, North (Mr. Jenkin), during which his fellow bright spark the hon. Member for Chingford (Mr. Duncan Smith) tried to claim that small business
drives to the heart of Conservative philosophy
because
small businesses are really about individuals, about dreams and aspirations
and therefore
solid Conservative principles are at the heart of the matter.
For sheer lack of logic—some would say claptrap—his comments are difficult to beat, especially as he failed to go on and point out how many small firms' dreams have been smashed and aspirations broken on the back of the Tories' recession.
A more accurate summing up of the position regarding small firms was offered by the hon. Member for Colchester,North—obviously a shrewd judge with a brilliant future behind him—when he said:
it is small firms that feel most under pressure in the recession, most put upon by the banks, most burdened by regulation and most neglected by Government policy."—[Official Report, 13 November 1992; Vol. 213, c. 1084–143.]
I could not have put it better myself. Our task this evening,
across the party divide, is to do what we can to unburden small businesses while observing the standards of employment practice shown in the best small firms. That is the aim of clause 48 and amendment No. 41.
Since that debate last November, the pressure of the recession seems to have eased somewhat—thank goodness for that—although it will take many years to undo the damage caused to small firms by it. There is still a long way to go to unburden small firms fully. It is worth pointing out that, as recovery picks up, some small firms will be experiencing fresh and different financial demans on them, exacerbating the existing problem of bad debt.
The Financial Times headlined a story on 4 May,
saying:
Upturn that can spell business ruin.
It explained that the increase in orders that may come
about as recovery picks up could mean the final strain on the recession-stretched finances of firms that have high borrowing levels and many late payments outstanding. That point was expanded in a speech made the next day by the director general of the CBI, Howard Davies, who observed:
small firms' cashflow is so finely balanced that sales growth can put some of them out of business through cash shortages.
A similar comment was made by the chairman of the CBI's
small firms council who said:
over the last year, record numbers of small firms have had difficulties in raising external finance. If these difficulties continue, they will seriously limit their performance and hamper plans for investment and expansion.
It is important to note those concerns, to start preparing
for that eventuality and to identify ways to assist small firms in such circumstances.
Bad debts represent a relatively small proportion of firms' finances, but they are an additional and, for many,

a critical burden. They are why, in the overall context of small firms' financial needs, it is necessary to make renewed efforts to solve the problem of late payments of debts and why it is important to reduce the waiting period for eligibility for VAT bad debt relief, as both the clause and the amendment would.
VAT payers should have to wait the minimum time possible before they are able to recover VAT payments that they have made on accounts that go bad. That is the aim of the amendment. That action needs to go hand in hand with wider support for small firms at a local level. There is little point in making the changes concerning bad debt and creating the easier conditions for small firms that we are discussing tonight if so much else is not going right, or not right enough, for small firms. I shall give a few examples of what I mean.
Small firms rely on local advice about bad debt and other help to assist their growth. The Government have wisely launched their one-stop shop initiative. Never mind that the scheme introduced by the President of the Board of Trade mirrors almost precisely the ideas that were set out by the Labour party and were originally described by my hon. Friend the Member for Dunfermline, East (Mr. Brown) in an article in The Independent on 24 April 1990.
Why has the Government's initiative made so little progress? I am glad that the DTI hopes, as it said this week, that the first of the 23 shops, which will give much needed advice on bad debt as well as on other matters relating to VAT, will be set up by July. However, as the Financial Times remarked yesterday:
On present plans, the government's proposals will take years to implement.
It is hard to believe that we cannot move faster. After all, the original announcement was made in the House on 3 December.
The problem of late payments—a close cousin of bad debt—is still acute. Small companies have little muscle to ensure that they are paid on time and are often particularly vulnerable to a single large debt. Recent surveys have shown that the United Kingdom's bill payment record is noticeably worse than that of the rest of Europe. That was confirmed in the survey to which my hon. Friend the Member for Oxford, East (Mr. Smith) referred. Despite trade initiatives such as the CBI prompt payer code, there is a need to have a statutory right to interest on unpaid bills. I urge the Government to re-examine that option. I hope that the Paymaster General, if he speaks again in the debate, will offer the Government's views on that matter.
Underpinning any VAT regime that accommodates the problems of small businesses must be a fair and open appeals procedure in the event of disputes about reclaiming VAT on business expenses. Clause 48 needs to be seen alongside another provision in the Bill. Another clause places on appellants the new burden of having to prove not only that they are right in the eyes of the law but that Customs and Excise acted "unreasonably". That seems unreasonable. Such is the difficulty of proving "unreasonable" in law that the clause has been called "outrageous" by Coopers and Lybrand. I think that it tilts the appeals procedure against the taxpayer, contravening the spirit of the Government's taxpayers charter. It should be reconsidered and I hope that the Paymaster General will tell us, either tonight or when we return to the matter in Committee, whether the Government are prepared to do that.
At the time of the Budget, there was some press criticism of the Chancellor for introducing a mixed package of VAT reforms, some helpful and some that did not go far enough in the view of small business organisations. Our amendment shows how the bad debt change could be taken a step further. I would also urge a close examination of the cash accounting scheme under which businesses with a turnover of below £300,000 are eligible to pay no VAT until they receive payment from their customers. That is extremely relevant to the issue that we are debating. That would be the best indemnity against bad debt, because the businesses taking advantage of the scheme account for VAT on the basis of payment received and made rather than on the tax invoices issued and money received, or not. In that way, the problem of reclaiming VAT on bad debts need not arise in the first place, which is why it is such a useful scheme and one that is so important for many small businesses.
I welcome the raising of the eligibility ceiling to £350,000; none the less, conditions for entry to the scheme remain restrictive. Quite often, that is because of the bad debt trouble that small firms already experience. I hope that the Government will examine further the administration of the scheme and look closely at ways to draw more businesses to it, including raising the ceiling further. At present, Customs and Excise estimate that only 40 per cent. of eligible traders are in the scheme.
The lesson of the past decade is that, even in the most enterprising business sector, Government support and action are vital for success. The Government concentrated their attention on that matter and their help to small businesses during the 1980s—I do not gainsay the assistance that they offered during that time—concentrated largely on start-up advice. That now needs to embrace greater help not simply to nurture the start-up of small firms but to promote their growth.
Without doubt, the greatest blow to small businesses has been the recession, which has been a disaster, a hurricane which has wiped out vast stretches of the small business sector and the enterprise culture. In Hartlepool, more than 130 small businesses have gone under in the past three years, 30 of them in vital industrial sectors. In the past 12 months, 55 companies have closed, although my recent meetings with the town's business people give some cause for cautious optimism that things are starting to improve. I certainly hope that they will.
If business confidence and order books are growing, as I hope that they are, and if they are to be sustained, now is the time to do everything possible to assist the growth of small businesses. The high street banks have a considerable responsibility in that.
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Greater long-term attention must be paid to the way in which small businesses are financed. That is an old and much debated issue which is familiar to Opposition Members who are concerned about small businesses; none the less, it has been insufficiently acted on by the banks and has been given insufficient encouragement by the Government.
The banks are often cast as villains, but recently I met representatives of NatWest and my impression was that some banks at least are more open to ideas on different ways of working, including increased debt-for-equity swaps, than they have been in the past. Those and other options desperately need to be driven forward if we are to

nurture and sustain the small business sector that we so desperately need for the success of our economy in future. I hope that the proposals and ideas will be put forward on the back of the Finance Bill and its proposals on bad debt relief and other changes.
I hope that the Government will see fit—if not tonight, then on future occasions—to give rather more positive consideration to the amendment.

Mr. Geoffrey Dickens: I am delighted that my right hon. Friend the Paymaster General has the pleasure of supporting the clause because, like many people, I know only too well of all the care, consideration and help that he has given small businesses throughout his parliamentary career. My right hon. Friend is on much safer ground than he was last night, when he was faced with a volatile and noisy Committee, and he has great experience in these matters.
I remind the Committee that we are discussing clause 48 which reduces the waiting period for eligibility for VAT bad debt relief from one year to six months. That is achieved in two ways. Clause 48(1) amends section 11(1)(c) of the Finance Act 1990 by reducing the elapsed time required for eligibility from one year to six months. What is also important, and has not yet been mentioned, is the alteration under subsection (2) which allows the reduced waiting period to have effect from 1 April 1993 in relation to supplies made on or after 1 April 1992.
I have often heard it said that large companies dine out on the overdrafts of small companies and I am sure that that is right. When companies have cash flow problems they make every possible excuse for not meeting their payments. Those excuses range from the mildest, such as that the cheque is in the post, to much stronger excuses. But cheques arrive unsigned and have to be sent back, thereby giving the company another week, or the totals are not written in, so the cheques go back.
People may phone up the accounts department of another company that owes them money, only to be told, "We cannot pay your £6,000 invoice until we get paid." I should like to think that many companies then ask, "How much can you afford to pay?". If the reply is, "We can only pay £3,000 until we get paid", smaller firms in particular should reply, "Well, pay us the £3,000." If everyone did that, money would begin to circulate and cash flow problems would be eased throughout the business sector, wages would be paid and banks would take the pressure off companies. It is one thing to suffer debt; it is another to lock up bad debt for a whole year. That is a long time for a company to wait, especially one experiencing cash flow problems.
Earlier, Opposition Members levelled accusations at the Government, blaming them for the fact that companies were struggling. The world recession is common knowledge, but we should remember that companies are robbed of jobs by such developments as mechanisation and automation. For instance, there was a time when every bus had a conductor; now the driver takes the money, and thousands of jobs have been lost. Similarly, railway booking offices used to contain any number of ticket sellers; now there may be one such employee, and travellers must buy their tickets from machines. There used to be a man at the barrier in the underground station; now passengers feed their tickets into the machine. Even


when passengers want to leave the station that is their destination, a machine must swallow their tickets before they can do so.
Years ago, people did all those jobs, but we must not struggle against change. The small businesses of today are the big businesses of tomorrow. When the railways were built, the farriers, those who made tack for the horses, the wheelwrights and people who made carriages threw up their hands in horror, saying, "We will be out of business." Many of them were, but at every railway station W. H. Smith put up a newspaper stand.

The First Deputy Chairman of Ways and Means (Mr. Geoffrey Lofthouse): Order. I always hesitate to interrupt the hon. Gentleman, but he is straying very wide of the subject of debt. I hope that he will relate his remarks to the amendment.

Mr. Dickens: May I finish my little story? It is relevant.
Suddenly, small companies began to mushroom following the setting up of those bookstalls—companies producing newspapers, magazines and books, which are now sold by the thousand at railway stations. They created many more jobs than had been lost to those connected with horses and carriages. That is an example of the way in which mighty companies can grow from little acorns.
The hon. Member for Oxford, East (Mr. Smith) made a good point. He said that there might be difficult days ahead for small businesses with debts. That is true. Unfortunately, until recently, the banks were pulling the plug rather quickly on small companies with cash flow problems, because their overdrafts were secured on assets such as buildings and land. As the property market began to slip and such assets became less valuable—especially in the south—they ceased to match those small companies' overdrafts. The banks began to fidget and to look for more security in other areas, driving the small companies into the ground.
As the hon. Gentleman pointed out, a greater danger lies ahead—a danger closely connected with debt. Small companies will want to buy more materials as the recession draws to a close and the market grows—we hope that we are now emerging completely from recession—in order to add value, to produce goods to sell and to increase their profits. Will the banks allow those companies to extend their overdrafts, which are running at the upper limits, so that they can buy the material that they need?
In the early days, the banks were pulling the plug because they felt that they could sell buildings and land more easily than small companies that were struggling. In the event, they found that they could not. What will happen when the assets grow in value to match the overdraft facility? Will the banks run for cover and pull the plug? In Germany, banks take equity in companies and run with them. Here, the banking mentality is different.

The First Deputy Chairman: Order. That is all very interesting, but what has it to do with debt in small companies? The hon. Gentleman should confine his remarks to the amendment.

Mr. Dickens: I am obliged to you, Mr. Lofthouse. I thought that I was dealing with debt and the problems of small businesses. Before you resumed the Chair, we had a

much wider debate, and I was endeavouring to answer points which were raised. I will accede to your request, since I have the greatest respect for you and the Chair.
Small businesses have already welcomed the proposal on bad debt in the Budget. The period of three months suggested by the Opposition is much too short. It cannot be said that a debt becomes a bad debt in such a short time. Companies like a sporting chance. When two companies have been dealing with each other for many years, one understands that the other is trying to keep its promise to pay and it would not want to regard a debt as a bad debt after only three months.
In some contracts, 90 days is the normal period for settling an account. It is going too far to suggest that an outstanding bill becomes a bad debt after three months. A period of six months is ideal.

Dame Elaine Kellett-Bowman: Can my hon. Friend explain why accountants often recommend that their clients should include in contracts a clause giving 10 per cent. off if a bill is paid in a certain period, but the accountants themselves and other professional people never knock 10 per cent. off their bills? Would that not be a good idea?

Mr. Dickens: Hon. Members will correct me if I am wrong, but I always thought that accountants made assumptions. People are going down a slippery slope when they start to give discounts. If a small business gave 10 per cent. discount, it would begin to work at distress rates and it would get into real difficulty.

Mrs. Angela Browning: I must come to the defence of accountants. I express an interest because my husband is an accountant. He gives the most generous discounts.

Mr. Dickens: I will not be tempted into an argument by saying that sometimes people must overcharge to be able to give large discounts. I am too generous of disposition to go down that road in a debate which must concentrate on clause 48.
I have made a sensible contribution. I always gain favour by leaving time for other hon. Members to make their contributions. I hope that theirs will be as sensible as mine.

Mr. Matthew Taylor: I hope that the hon. Member for Littleborough and Saddleworth (Mr. Dickens) will get a gold star in the Whips' book to follow the black mark that he got yesterday. His turn round could scarcely be equalled for speed, if not necessarily for the quality of his contribution—[HON. MEMBERS: "Shame."] —although it was entertaining.

Mr. Mandelson: Withdraw.

Mr. Taylor: I do not think that it is necessary to withdraw. Opposition Members are supportive of the hon. Member for Littleborough and Saddleworth, but I do not want to go too wide of the amendment and be called to order by the Chair.
The debate is important to small businesses, a subject in which I am particularly interested. There are many small businesses and self-employed people in my constituency. Indeed, the Liberal Democrats currently represent many areas, such as Cornwall and Bath, containing a high proportion of small businesses. My hon. Friends and I


have over the years raised the concerns of small businesses and have argued the case on their behalf in respect of bad debt and VAT payments.
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Clause 48 is a welcome pro-small business move and is designed to help cash flow. Businesses will have to wait less time to get back from Customs and Excise the VAT paid in respect of goods and services already sold but not paid for. As I have said, it is a welcome move which will be supported in all parts of the Committee. It will be particularly welcome to small businesses which have witnessed the stern and unbending hand of the penalties for late payment of VAT. They will be pleased to see matters turning more in their favour.
I have recently been dealing with the case of a small business in my constituency. The firm posted a VAT return in time but it was not received by the VAT office because of a dispute there. That meant that the post had not been processed. Even so, the firm is being asked to pay a fine and has been told, in effect, "Had you posted it earlier, it would have arrived before the industrial dispute." That seems harsh, and I shall be contacting the Minister once the small business in question has had time to digest that reply and got over the shock.
The measure now proposed by the Government is more generous. There is a connection between the VAT relief for bad debt and the VAT cash accounting scheme. Whereas the VAT relief applies to most companies, for the smallest companies which elect for VAT cash accounting there is no waiting period because they pay the VAT only when they get paid.
If the VAT cash accounting scheme applied to more businesses, VAT relief would be needed only for larger companies, which are generally more able to cope with cash flow problems. The Government brought the scheme into existence in 1987 and have increased the threshold in this Budget. That is welcome. The threshold for eligibility to the scheme will now be£350,000.
Liberal Democrats argue in our alternative budget that the threshold would be more appropriately increased to £1 million, so achieving a clear difference between companies which find it difficult to meet cash flow problems arising from bad debt and larger companies which are more able to absorb relatively small-scale problems as they proceed through their normal course of business.
Has the Minister explored the possibility of increasing further the threshold on the VAT cash accounting scheme, thus giving more help to more small companies? That would give more help than the Labour amendment would achieve. The only cost to the Exchequer would be a cash flow cost. Although it might under EC rules require a derogation, the Minister should explore that area because it would make a real difference to a large number of companies which, by any normal definition, remain small, albeit they are outside the limits of the scheme.
While the clause deals with one Government-related problem of bad debt, there is a much larger private sector problem concerned with the late payment of debt. Indeed, the day-to-day problem that most businesses in Cornwall have mentioned to me is late payment of commercial debt. When a firm's business customers do not pay their bills on time, the cash flow problems can have so many other effects in terms of higher costs and pressure from the bank that the firm can end up closing down, with knock-on effects for its suppliers.
I recall leaning against a gate by the travelling surgery that I conduct in villages around my constituency talking to a builder who had been put out of business precisely because of the problem that I have described. He simply could not understand the attitude that had been taken not just by the Government but by various bodies with which he had had to deal. He felt that there was so little understanding of the problem that he had been put out of business through no fault of his own. He had indeed done the job well; it was merely the payment that had not come through.
Some might ask what the late payment of commercial debt has to do with the Government. Is it not, they ask, up to the firms involved to sort themselves out? The evidence goes against this purist, non-interventionist view, however. Despite years of exhortation to firms to pay their bills promptly, on the part of the Government and of business organisations such as the CBI, a recent survey by the Association of British Factors and Discounters showed that the average repayment period was now 80 days. A similar survey conducted last December by Trade Indemnity, the credit insurer, found that only 3 per cent. of nearly 600 firms contacted were being paid on time. In 1991, the Forum for Private Business estimated that small companies were owed more than £100 million in overdue debt.
The recovery may reduce the scale of the problem, and the latest quarterley review of the Association of British Factors and Discounters suggests that that is happening. If so, it is certainly welcome, but the problem will not go away. A report by the National Westminster bank in yesterday's Financial Times found the picture as bad as ever; and today's Financial Times quotes a study by the Manchester business school showing that, because of the recession in some European countries, some United Kingdom firms are finding it difficult to get continental customers to pay their bills on time, suggesting moreover that there may need to be action at European level to prevent unfair practices from taking hold in the single market. I hope that the Minister will make representations about the problem in Europe. This is a good example of a problem that will need to be tackled in future at that level.
However one considers the payment of commercial debt, there is clearly a problem. Although we welcome the provisions of clause 48, it shows that the Government are missing the larger picture in relation to late and bad debts.
There are some simple measures which firms can take themselves and which the Government can help to facilitate. First, many firms need to manage credit lines better. Often, companies can do more themselves, and the Government could encourage training and enterprise councils, and local enterprise companies in Scotland, to run courses in credit management for business people and their employees. If the one-stop shops develop as I hope that they will—we have long called for their development —I trust that they will take a lead in this area.
The Government could also make good their long-standing pledge to simplify the cumbersome and costly commercial debt recovery procedures so as to make legal redress for companies a realistic option. If they do so, the costs of this measure may fall as a result. A little money spent now may save the Government money in the longer term.
Even with such developments, however, I believe that late payment will remain a serious problem for small and medium-sized companies. The commercial fact of life is


that larger firms can and do use their market power to scare their smaller suppliers into putting up with late payment. That abuse of market power suggests a role for competition policy and hence for some sort of Government intervention.
The Chancellor half acknowledged this problem when he announced in the pre-election Budget that new legislation would require larger companies to state in the notes to their accounts the average time taken to pay their bills. But the lack of understanding in the DTI of the seriousness of the problem was shown by the fact that it took almost a year for the Government to follow up that announcement with a consultation paper. In any case, shaming companies into paying their debts on time in this way is likely to prove ineffective. It might even prove counter-productive; those thinking of investing might inquire why payment was being made so quickly instead of pressing companies to pay more speedily.
So why not legislate for a statutory right to interest on debts outstanding after a certain period? The idea has received support in all parts of the House in the past, and it has been implemented in every European country bar the United Kingdom and Ireland. It is one measure that gets over the free-rider problem, ensuring that every firm has an incentive to comply. This measure would change the current awful culture of waiting until the very last minute before making payment. If the measure were in place, business men could devote their time to being business men instead of debt collectors.

Mr. Spencer Batiste: Surely the hon. Gentleman knows that the reason for that idea not having been carried through and being treated with considerable reserve by many business organisations is that it is likely that if there were a compulsory right to interest, it would be enforced by the big companies against the small ones while the small companies would not dare to alienate their customers by acting similarly.

Mr. Taylor: That argument has been put forward before. My experience is that it is the big companies which resist the principle while the small ones argue for it. What I am suggesting for the United Kingdom is done in other European countries. I am sure that the hon. Member for Elmet (Mr. Batiste) will acknowledge that this debate takes place across parties as well as between them. However, I believe that he is wrong and that a great many small businesses agree with me.

Mrs. Browning: The hon. Gentleman is probably aware that the Federation of Small Businesses—the biggest organisation for small businesses in this country, I believe —has declined to adopt the policy that he is putting forward. That body has identified the problem as being that, whether or not interest is charged, small companies ultimately have to go through the civil procedures of the British courts. That is what gives rise to most of the problems that small companies experience. They have to secure a judgment, but more often than not they also have to go back to have the judgment enforced. In the meantime, very often the bird has flown. That problem, too, must be addressed.

Mr. Taylor: I strongly agree with the hon. Lady. Indeed, I referred a few moments ago to the need to sort out a system of securing payment. I am sure that the hon. Lady, like me, receives many letters from small businesses

that have obtained an order to secure payment but find that they have to go back to court. In many cases they are advised that it would simply be too costly to pursue the matter. Perhaps the Government could alter the title of the Criminal Justice (Amendment) Bill and introduce into it a provision to tackle this problem. Why wait?
The problems caused by bad debt are to only a very small degree solved by this clause. None the less, I welcome the fact that the Government are moving in the direction of change. Although there are some signs that we are coming out of recession, small businesses still have to face extremely harsh problems. Indeed, many people are still likely to lose their businesses. We have heard expressions of worry that it may take some years to recover properly from the recession. I am afraid that many people who have lost their businesses will never recover. We must consider all possible means of tackling this problem.
For many businesses in the south-west, the problems created by rising electricity, gas and water prices represent a more urgent and fundamental priority. None the less, this is an important measure, which is welcomed by my party.

Mrs. Browning: Payment on time and bad debt have been identified by hon. Members on both sides of the Committee as very important and serious, especially in relation to the cash flow of small businesses. My hon. Friend the Member for Littleborough and Saddleworth (Mr. Dickens) began by outlining the way in which many companies, particularly large companies, try to avoid payment when it becomes due, and he identified three or four of the most common excuses for non-payment.
I must declare an interest. Before becoming a Member of Parliament, I was a management consultant, and one of the areas in which I specialised was advice for companies in the United Kingdom and abroad on collection and credit control. It may be of assistance to my hon. Friend the Minister—as I am in a generous mood, perhaps I should say that it may be of interest to hon. Members on both sides of the Committee—if I say that I have a list of the 20 most common excuses used for non-payment, and I can tell hon. Members the response that one should make immediately to ensure that one is not floored by one of these excuses.
This is a serious matter. There are many reasons for the failure of companies to get their money on time. We have heard about the difficulties involved in dealing with large corporations. In many sectors, one sees the big stick being waved. This applies not least in the retail food chain, where small businesses supply the large supermarkets.
Such chains will often arbitrarily change the terms of a contract in mid-contract. An egg producer in my constituency was told by a large supermarket that the payment term that had previously been 30 days was to be changed to 60 without any question of renegotiation.
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We understand the difficulties and, ultimately, the cash flow problems that that means for small businesses, and I welcome the measure that my right hon. Friend the Chancellor has introduced on the treatment of debt and VAT. My right hon. Friend has already mentioned that it will mean an estimated £150 million benefit to the cash flow of businesses.
As the hon. Member for Hartlepool (Mr. Mandelson) and others have mentioned, the cash accounting scheme


means that small businesses—previously those with a turnover of £300,000, now £350,000—will not have the problem, because they will be dealing on a cash accounting basis, and that is most welcome. I am aware, as I am sure is my right hon. Friend, that many small business organisations, in their representations to the Treasury before the Budget, particularly asked for this measure to be introduced.
I also know from consultations with Treasury Ministers before the Budget that, realising that it would be a difficult Budget with not a lot to give away, Conservative Members urged my right hon. Friend that anything that he could give should be given to the small business sector. This will be extremely welcome.
The hon. Member for Truro (Mr. Taylor) mentioned debts and the ability to add interest to them. That can be negotiated, as long as it is done at the point of contract and not added retrospectively. I am sure that all hon. Members are aware that other members of the EC operate the scheme.
The hon. Member mentioned the difficulties that those countries are having. Again, I am prepared to share an experience with the Committee. In Italy, a letter to the local chamber of commerce resulted in the payment of a debt by return. Again, that suggests that other European countries are now suffering from the recession, and the payment of debts may become a more common problem.
In my own business experience of dealing with public limited companies and large corporations, right down to small businesses and sole proprietors, they are still reluctant, when they agree to do business with other businesses, to carry out the necessary credit controls and checks to ensure the creditworthiness of those with whom they are about to do business.
There are many examples of what can only be described as sloppy procedure on the part of companies. Sometimes it is not deliberate. The smaller the company, the busier are the people who run it. The sole proprietor of a small business has to sell and buy goods and deal with the documentation, and I can understand it if chasing up debts is put on the back burner. However, the longer a debt is left, the more likely it is that ultimately it will be written off, and that includes the VAT element as well. Many companies have been forced to do that: it is not a case of good business practice. That is a salutary lesson for any company to learn.
One has to be vigilant and efficient in getting money in on time. As someone who has, or had, a reputation to keep in this area—I occasionally write on the subject in periodicals—my terms were 30 days; on day 31, the person who owed me money received a telephone call from me before 10 am. I thoroughly commend that procedure to businesses, particularly small ones.
The measure reducing from one year to six months the waiting period for bad debt relief will be welcome. lion. Members have identified areas associated with bad debt and business write-offs which are a burden on businesses. One of the difficulties that businesses have to face concerns the banks. The reduction of interest rates will help with the cash flow of businesses.
We are pleased that interest rates are coming down. However, one must sometimes question the banks' judgment when lending to small businesses, because they should realise that businesses may sink.
The hon. Member for Hartlepool gave examples of the difficulties that businesses face when they are expanding.
Businesses get into debt because they do not have orders; they also get into debt because they are doing well. The hon. Gentleman outlined what we all recognise as over-trading. We shall have to address that problem as the economy picks up, and as businesses receive more orders and begin to grow again.

Mr. Alan Milburn: The clause is obviously very welcome; the problem is that it does not go far enough. It has taken the Government five years to reduce the deadline for bad debt recovery from two years to six months. They should have gone rather further rather more quickly.
The amendment is designed to assist small businesses in particular. I was especially taken with the contribution by the hon. Member for Littleborough and Saddleworth (Mr. Dickens), who spoke a lot of sense—I hasten to add the caveat, "on this one occasion"; I cannot say that I always agree with everything he says. The problems of small businesses that he outlined, such as access to finance and difficulties with bad debts, were pertinent. Before I came to the House, I worked in north Tyneside with small companies, both fledgling and expanding, and I know that the hon. Gentleman identified the problems accurately.
The problems that most often arose for small businesses were simple. They were lack of access to finance for expansion, especially in the range £250,000 to £1 million, in which venture capital is not available. That problem is especially acute in the peripheral regions, including my own, because venture capital is overwhelmingly concentrated in the south-east. Companies also encountered problems with late payment and bad debts. Those were the problems that the companies most often identified.
For small companies, especially companies that seek to grow rapidly, bad debts and late payments can quickly become a death sentence. My hon. Friend the Member for Hartlepool (Mr. Mandelson) has already pointed out the ways in which the problems can become more acute at the beginning of a recovery. Small businesses cannot rely on retained surpluses or on profits. They probably have to rely on borrowing for investment, and on cash flow to support risk business.
We have heard about the positive steps that have been taken in expanding the limit to £350,000, which is welcome. However, I hope that the Paymaster General will take the opportunity to address the remarks made by my hon. Friend the Member for Oxford, East (Mr. Smith) about the fact that many firms that qualify under the cash accounting scheme do not take advantage of its provisions. Approximately 200,000 small companies fall into that category. Hundreds of thousands of other small firms fall outside the £350,000 exemption which face similar difficulties.
There are 3 million small firms in this country, and there are 3 million self-employed people. They play a vital and expanding role in the nation's economy. Between 1987 and 1989, for example, firms with fewer than 10 employees were responsible for nearly half the jobs created. Small firms are often the most innovative and entrepreneurial, and they are often the most prone to take the biggest risks. They therefore need the most assistance. They have been badly treated in the recent years of recession. Between 1989 and 1992, there were almost 187,000 new VAT registrations, which was extremely good news. However, 240,000 VAT-registered businesses were deregulated, amounting to a net loss of about 53,000 companies.
As my hon. Friends have made clear, smaller companies are especially prone to bad debt problems. The finances of small companies suffer disproportionately from late payment.
The reasoning behind the amendment is simple: if the Government's claims about economic recovery and about the key role that small businesses will play in it are true, it is important that Ministers act to ensure that real stimuli are given to help that recovery. As the Financial Times article of a day or so ago suggested, there is a late payment culture in Britain. The problems that small businesses face as a result of late payments and bad debts are much more acute than those faced by their cousins on the continent. It is incumbent on the Government to play a positive role in intervening to overcome those problems
I am reminded of the famous and oft-quoted remarks of the President of the Board of Trade about intervening before each and every meal. The amendment gives the Government a real opportunity to do just that. I hope that the Minister will take it seriously. I hope that he will show his empathy with small businesses and his sympathy for those who have given their lives to create job opportunities and wealth by helping them to overcome some of the problems that beset them, through no fault of their own.

Mr. Richard Page: I apologise to the Committee for the fact that I was not here for the start of the debate. A constituent came to see me about difficulties in connection with the statementing of a child. Faced with such difficult situations, I put my constituents first, but I again apologise for not being here earlier.
As someone who has taken a great interest in small business for 16 or 17 years now, I can, I think with modesty, suggest that this is ground that has been galloped upon quite a few times. Although I do not recognise the amendment as a sensible proposal and will not support it if there is a Division, I welcome the opportunity it gives us to draw to the attention of the Committee and the nation the problems of small business debt.
Small businesses are the acorns from which oaks can grow. They are the employment generators of the future. In future, employment will come not from big businesses, which, as a result of robotics and information technology, will shed rather than generate jobs, but from smaller business with more labour-intensive requirements. It is small businesses that we should be encouraging at this stage.
I want to disabuse the Committee of the popular view that running a small business is easy. In fact, it is harder than running a big business. Someone running a small business must be able to understand VAT, health and safety legislation, the pay-as-you-earn system, national insurance and employment law. One has five minutes left at the end of the day in which to run the business itself and perhaps make a few shillings to pay VAT, the uniform business rate, national insurance and so on.
In small business, debt control is not easy and it is not good. During the past six months or so, I have been going around the regional centres of our banks. I have been unhappy with the banks' support for business over the past year or so. To my amazement, although I would not say that they have been fighting back—they are too delicate and too gentle for that—more than one bank has told me

that, of its commercial clients who have turnovers of up to £.1·2 million a year—I do not know why that is the figure used—only 10 per cent. produce a profit and loss account for every month's trading.
That is staggering. How anyone can go into small business and try to run a business without a monthly profit and loss account, I simply do not know; I find it incredible. If that is the case, every figure goes out the window when one starts talking about cash flow. It is small wonder that small businesses run into trouble on debt control, not because of malevolence or trying to fiddle things, but because they simply do not have the proper managerial tools.
I welcome the change from one year to six months. I welcome the Labour party's amendment as a method of opportunity to debate the matter. If Labour Members know anything at all about small business, they will not press the amendment to a vote tonight. If they do, that will show that they are completely ignorant of small business and are simply using it as a tool to debate a specific issue and make a specific point. The small business sector will be back safely in Conservative hands, because Labour Members do not understand it one iota.
The hon. Member for Hartlepool (Mr. Mandelson), who has obviously popped out to have some dinner or something, said that bad debt is a small proportion of the small business sector and its debts. That exposes an innocence of the small business world, because there is a real difficulty in distinguishing between the slow payer and the long payer in small business. My hon. Friend the Member for Littleborough and Saddleworth (Mr. Dickens) made a point about all the excuses that can be used to delay debt.
At the end of the day, one never knows whether a person will pay. One gets into the catch 22 position—does one want to lose customers or hope to get the money and then retain them and do more business?

Mr. Dickens: Will my hon. Friend give way?

Mr. Page: With respect to my hon. Friend, who made a powerful speech earlier, I am getting messages from afar that mean that I have literally one minute to go.
The pressure on small businesses to do business in recessison is almost irresistible. The measure introduced by the Government is exceptionally helpful, especially the provision that it will come into force on 1 April 1993 and apply to supplies that come in on or after 1 April 1992. That will give a valuable cash flow boost to those companies that accumulated debts during that period and help to go forward into the recovery that is now taking place.
I sincerely hope that Labour Members will not press their amendment tonight, but congratulate the Government on reducing the provision from one year to six months.

Mr. Clive Betts: Labour Members are not fundamentally disagreeing with the Government's proposal on bad debts or, indeed, the other proposals in the Budget to assist small businesses. In our amendment, we are saying that the Government have not gone far enough. We do not believe that their proposals are unacceptable; they are unexceptional. They have missed so many opportunities to assist small firms, especially at a time when they have great problems with debt.
We are not simply dealing with small firms that tick on daily and yearly. We should be looking at the growing firms that can add to and create the industrial base for the future at a time when, even by the Government's forecast, investment in manufacturing in the United Kingdom at the end of this year will still be 10 per cent. lower than it was in 1989. We can see the scale of the problem that we want to address.
Clearly, there is a debt crisis in the United Kingdom. It is almost as though small firms are playing a bizarre game of pass the parcel. The problem is that, when the music stops and the firm ends up with the parcel, it ends up with a debt problem that cannot be resolved because of cash flow difficulties. The small firm then goes out of business. It passes on the parcel—it owes money to other firms, but cannot pay because it has gone out of business, so the next firm with the parcel is also overwhelmed by debt and goes out of business.
Time and again in my constituency I have seen how the failure of one firm spirals down to the failure of other firms. The game is a handicap. As Conservative Members said, small firms are handicapped as large firms take advantage of them and squeeze them harder on the supply of goods and payment times, to the advantage of larger organisations.
All too often in this debt crisis, we see not merely industrial failure. So often the borrowing of small firms is backed, because the banks put on pressure, by the only asset that owners have—their house. So often as constituency Members we see not merely the failure of small firms, but, as a result of the problems of negative equity, repossession of the property of the owner. That is a problem in this recession. But let us think what will happen in the next recession. Let us see what will happen in the recovery which we hope is starting. Who will go to the bank to borrow money when the requirement is to put up his house as the asset backing? Who will do that knowing that thousands of people have lost not merely their business but their home in this recession?
Where are the Government's proposals? I should like the Paymaster General to consider promoting an initiative to introduce equity lending and venture capital on a real scale into the funding of small enterprises in Britain. I have seen nothing in the Budget and heard nothing from the Government on that. Have they not listened to Howard Davies, who has said that just as the banks over-lent during the 1980s, there is a real danger that they will over-react and over-restrict their lending in the 1990s? If the banks do that, where else is the capital for small firms to come from?
Why have not the Government expanded the loan guarantee scheme on a massive scale or launched a Government initiative to release the resources of pension schemes for direct investment? Why do not the Government respond to the Confederation of British Industry, which has made proposals recently to address the issue of debt? The Government could create an independent debt tribunal to address the problems of debt recovery for small firms, to which the hon. Member for Tiverton (Mrs. Browning) referred.
On the issue of swifter payments, why have not the Government considered the German scheme and introduced a national initiative to reduce payment times to protect small firms from pressure from larger firms? Why have not the Government introduced initiatives to swap debt for equity? Why have they not produced a

replacement for the business expansion scheme operating through local investment vehicles, which the CBI has promoted? We do not want the sort of scheme that resulted in fake housing enterprises which were simply a vehicle for tax avoidance for so many people. But why have not the Government introduced a scheme to channel money into small enterprises?
Why do not the Government address the problem that 64 per cent. of venture capital goes into management buy-outs rather than start-ups or early stage funding? The Paymaster General said that so much had been achieved by small firms in Britain. So much more could be achieved if only the Government and the financial institutions got together and assisted the development of our future industrial base.

Mr. Batiste: I am grateful for the opportunity to speak, albeit briefly, in the debate on a subject on which I made my maiden speech some 10 years ago. The matter has by no means diminished in importance in those years. The common feature of virtually all the speeches by both Conservative and Opposition Members was the importance of small businesses to the economy. There has been a surprising increase in the number of jobs in the past couple of months. That reduction in unemployment was unexpected at this stage of an economic recovery. I suggest that it was largely created by small businesses, which are operating close to the optimum level of efficiency. They can therefore respond to growth quickly.
As small businesses respond to growth, they will be in danger of overtrading and their cash flow will come under severe pressure. That is why the Government's measure is welcome. It injects an extra £150 million into the cash flow of small businesses at a time when they need it. The backdating to 1 April will also be welcome because it will give companies the opportunity to plan from now with considerable security.
I am aware of the time and I know that my right hon. Friend the Paymaster General wants to reply to the debate. I make one plea with all the force at my command. While the measures to improve cash flow are important, the one thing above all that the Treasury can do to help small businesses in the next year is to show a measure of forebearance to companies that are a little late in paying their VAT, national insurance or income tax. That lateness often does not happen because companies have mispriced their products or are running their businesses badly, but because they are having to wait for money from their customers. I hope that my right hon. Friend will be able to say that the Treasury understands that problem and will be reasonably sympathetic to companies that say that they need a little understanding to see them through until they are paid.
I commend the clause and I ask the Opposition not to press the amendment to a Division, because there is a difference between late payment and bad debt. Bad debt occurs much later than after three months. If we adopted the three-month waiting period, the VAT clawback would inevitably impose a regulatory burden. We need deregulation, not more regulation, and imposing a three-month limit instead of a six-month one would be bound to produce a regulatory nightmare. I look forward to hearing what my right hon. Friend says.

Sir John Cope: With the leave of the House, I shall respond briefly to the debate, which has been an interesting one and has ranged a good deal wider than the clause under consideration. It was none the worse for that.
My hon. Friend the Member for Hertfordshire, South-West (Mr. Page) echoed an important point that I used to emphasise when I was the Minister responsible for small firms—that running a small business is more difficult than running a large one simply because of the range of expertise that one must have and the number of different matters with which one must keep up. That is why it behoves those of us in government, with responsibility for the different bits of bureaucracy that impinge on small businesses, to ensure that we do our best to make sure that that bureaucracy is as user-friendly as possible. That applies as much to VAT as to any part of Government bureaucracy.
My hon. Friend the Member for Elmet (Mr. Batiste) called for forebearance. Although Customs and Excise has been pursuing its proper duties in claiming revenue, my hon. Friend may be interested to know that the number of time-to-pay agreements has increased by 52 per cent. in the latest financial year for which figures are available, 1991–92. The value of those agreements has increased by 70 per cent. That demonstrates how debt management, the phrase now used by Customs and Excise, has responded to the needs of small business in the manner requested by my hon. Friend.
My hon. Friend the Member for Littleborough and Saddleworth (Mr. Dickens) made an interesting and even more wide-ranging speech than other hon. Members and referred to the commencement date. The new provision applies to a debt resulting from goods supplied in the previous year. If a firm has not been paid for something supplied on 30 June last year, under the old system it would not have been able to write off that payment for VAT purposes as a bad debt because 12 months had not elapsed. It will now be able to do so and could have done as soon as the new scheme started on 1 April.
My hon. Friend the Member for Tiverton (Mrs. Browning) gave us the advantage of her expertise and gave us some shrewd advice for which, before she became a Member, we would have had to pay and, as she made clear, paid promptly. Even if we had got a discount from her husband, it was not clear that we would have done from my hon. Friend, for reasons that my hon. Friend the Member for Littleborough and Saddleworth made clearer than most.
The hon. Member for Truro (Mr. Taylor) raised a number of points about the cash accounting scheme. The consultation document states that the aim is
to make Cash Accounting as attractive and simple to use as possible.
In other words, it will be user-friendly, as I said earlier.
On that subject, the hon. Member for Hartlepool (Mr. Mandelson) said that the conditions of entry to the cash accounting scheme should not be too restrictive. He seems to have gone back to Hartlepool or somewhere; at any rate, he is not here now. I tried to make it clear in my opening remarks that we had made it a lot easier to enter the cash accounting scheme. One need no longer fill in a form and seek permission in advance. Only two restrictions remain: the person concerned must not have committed a VAT offence in the past three years and must

not have a debt to the Customs of more than £5,000 at the time. Those are very small restrictions on entry to the scheme.
10 pm
As a past member of the Deputy Chief Whips' society or union, I must not run over my time tonight. I just want to emphasise, in concluding, that this is not the only thing that we are doing for small business in the Finance Bill. There is a range of help for small businesses and quite properly so, as the debate has emphasised, as regards rates, VAT penalties, capital gains tax relief for entrepreneurs, improvements to the loan guarantee scheme as called for by the hon. Member for Sheffield, Attercliffe (Mr. Betts), reduced premiums for the loan guarantee scheme, expansion of the business start-up scheme and various deregulation measures.
All these are extremely desirable and I thoroughly recommend them and clause 48 to the Committee, but I do not recommend that the Committee votes for amendment No. 41.

Question put, That the amendment be made:—

The Committee divided: Ayes 252, Noes 292.

Division No. 264]
[10.00 pm


AYES


Abbott, Ms Diane
Cousins, Jim


Adams, Mrs Irene
Cryer, Bob


Ainger, Nick
Cunningham, Jim (Covy SE)


Ainsworth, Robert (Cov'try NE)
Cunningham, Rt Hon Dr John


Allen, Graham
Dafis, Cynog


Anderson, Donald (Swansea E)
Darling, Alistair


Anderson, Ms Janet (Ros'dale)
Davidson, Ian


Armstrong, Hilary
Davies, Bryan (Oldham C'tral)


Ashdown, Rt Hon Paddy
Davies, Rt Hon Denzil (Llanelli)


Austin-Walker, John
Davies, Ron (Caerphilly)


Barnes, Harry
Denham, John


Barron, Kevin
Dewar, Donald


Battle, John
Dixon, Don


Bayley, Hugh
Dobson, Frank


Beith, Rt Hon A. J.
Donohoe, Brian H.


Bell, Stuart
Dowd, Jim


Benn, Rt Hon Tony
Dunnachie, Jimmy


Bennett, Andrew F.
Dunwoody, Mrs Gwyneth


Benton, Joe
Eagle, Ms Angela


Berry, Dr. Roger
Eastham, Ken


Betts, Clive
Enright, Derek


Blunkett, David
Etherington, Bill


Boateng, Paul
Evans, John (St Helens N)


Boyce, Jimmy
Ewing, Mrs Margaret


Boyes, Roland
Fatchett, Derek


Bradley, Keith
Faulds, Andrew


Brown, Gordon (Dunfermline E)
Field, Frank (Birkenhead)


Brown, N. (N'c'tle upon Tyne E)
Fisher, Mark


Bruce, Malcolm (Gordon)
Flynn, Paul


Burden, Richard
Foster, Rt Hon Derek


Byers, Stephen
Foster, Don (Bath)


Callaghan, Jim
Foulkes, George


Campbell, Mrs Anne (C'bridge)
Fraser, John


Campbell, Menzies (Fife NE)
Fyfe, Maria


Campbell, Ronnie (Blyth V)
Galbraith, Sam


Campbell-Savours, D. N.
Gapes, Mike


Cann, Jamie
Garrett, John


Carlile, Alexander (Montgomry)
George, Bruce


Chisholm, Malcolm
Gerrard, Neil


Clark, Dr David (South Shields)
Gilbert, Rt Hon Dr John


Clarke, Eric (Midlothian)
Godsiff, Roger


Clarke, Tom (Monklands W)
Golding, Mrs Llin


Clelland, David
Gould, Bryan


Clwyd, Mrs Ann
Graham, Thomas


Cohen, Harry
Grant, Bernie (Tottenham)


Connarty, Michael
Griffiths, Nigel (Edinburgh S)


Cook, Frank (Stockton N)
Griffiths, Win (Bridgend)


Cook, Robin (Livingston)
Grocott, Bruce


Corston, Ms Jean
Gunnell, John






Hain, Peter
Murphy, Paul


Hall, Mike
Oakes, Rt Hon Gordon


Hanson, David
O'Brien, Michael (N W'kshire)


Harman, Ms Harriet
O'Hara, Edward


Heppell, John
Olner, William


Hill, Keith (Streatham)
O'Neill, Martin


Hinchliffe, David
Orme, Rt Hon Stanley


Hoey, Kate
Paisley, Rev Ian


Hogg, Norman (Cumbernauld)
Parry, Robert


Hood, Jimmy
Pendry, Tom


Hoon, Geoffrey
Pickthall, Colin


Howarth, George (Knowsley N)
Pike, Peter L.


Hoyle, Doug
Pope, Greg


Hughes, Kevin (Doncaster N)
Powell, Ray (Ogmore)


Hughes, Robert (Aberdeen N)
Prentice, Ms Bridget (Lew'm E)


Hutton, John
Prentice, Gordon (Pendle)


Illsley, Eric
Prescott, John


Jackson, Glenda (H'stead)
Primarolo, Dawn


Jackson, Helen (Shef'ld, H)
Purchase, Ken


Jamieson, David
Quin, Ms Joyce


Janner, Greville
Randall, Stuart


Jones, Barry (Alyn and D'side)
Raynsford, Nick


Jones, Ieuan Wyn (Ynys Môn)
Reid, Dr John


Jones, Lynne (B'ham S O)
Rendel, David


Jones, Martyn (Clwyd, SW)
Robertson, George (Hamilton)


Jones, Nigel (Cheltenham)
Robinson, Geoffrey (Co'try NW)


Jowell, Tessa
Roche, Mrs. Barbara



Kaufman, Rt Hon Gerald
Rogers, Allan


Keen, Alan
Rooker, Jeff


Kennedy, Charles (Ross, C&S)
Rooney, Terry


Kennedy, Jane (Lpool Brdgn)
Ross, Ernie (Dundee W)


Khabra, Piara S.
Rowlands, Ted


Kinnock, Rt Hon Neil (Islwyn)
Ruddock, Joan


Kirkwood, Archy
Salmond, Alex


Leighton, Ron
Sedgemore, Brian


Lestor, Joan (Eccles)
Sheerman, Barry


Lewis, Terry
Sheldon, Rt Hon Robert


Livingstone, Ken
Shore, Rt Hon Peter


Lloyd, Tony (Stretford)
Short, Clare


Llwyd, Elfyn
Simpson, Alan


Loyden, Eddie
Skinner, Dennis


Lynne, Ms Liz
Smith, Andrew (Oxford E)


McAllion, John
Smith, C. (Isl'ton S & F'sbury)


McAvoy, Thomas
Smith, Llew (Blaenau Gwent)


McCartney, Ian
Soley, Clive


Macdonald, Calum
Spearing, Nigel


McFall, John
Spellar, John


McGrady, Eddie
Steel, Rt Hon Sir David


McKelvey, William
Steinberg, Gerry


Mackinlay, Andrew
Stevenson, George


McLeish, Henry
Strang, Dr. Gavin


Maclennan, Robert
Taylor, Mrs Ann (Dewsbury)


McMaster, Gordon
Taylor, Matthew (Truro)


Madden, Max
Tipping, Paddy


Mahon, Alice
Turner, Dennis


Mandelson, Peter
Tyler, Paul


Marek, Dr John
Vaz, Keith


Marshall, David (Shettleston)
Walker, Rt Hon Sir Harold


Marshall, Jim (Leicester, S)
Wallace, James



Martin, Michael J. (Springburn)
Walley, Joan


Martlew, Eric
Wardell, Gareth (Gower)


Maxton, John
Wareing, Robert N


Meacher, Michael
Watson, Mike


Meale, Alan
Welsh, Andrew


Michael, Alun
Wicks, Malcolm


Michie, Bill (Sheffield Heeley)
Wigley, Dafydd


Michie, Mrs Ray (Argyll Bute)
Williams, Rt Hon Alan (Sw'n W)


Milburn, Alan
Williams, Alan W (Carmarthen)


Miller, Andrew
Wilson, Brian


Mitchell, Austin (Gt Grimsby)
Winnick, David


Moonie, Dr Lewis
Wise, Audrey


Morgan, Rhodri
Worthington, Tony


Morley, Elliot
Wray, Jimmy


Morris, Rt Hon A. (Wy'nshawe)
Wright, Dr Tony


Morris, Estelle (B'ham Yardley)
Young, David (Bolton SE)


Morris, Rt Hon J. (Aberavon)



Mowlam, Marjorie
Tellers for the Ayes:


Mudie, George
Mr. Peter Kilfoyle and Mr. Jon Owen Jones.


Mullin, Chris






NOES


Ainsworth, Peter (East Surrey)
Evans, Jonathan (Brecon)


Aitken, Jonathan
Evans, Nigel (Ribble Valley)


Alison, Rt Hon Michael (Selby)
Evans, Roger (Monmouth)


Allason, Rupert (Torbay)
Evennett, David


Amess, David
Faber, David


Ancram, Michael
Fabricant, Michael


Arbuthnot, James
Fairbairn, Sir Nicholas


Arnold, Jacques (Gravesham)
Field, Barry (Isle of Wight)


Arnold, Sir Thomas (Hazel Grv)
Fishburn, Dudley


Ashby, David
Forman, Nigel


Aspinwall, Jack
Forsyth, Michael (Stirling)


Atkinson, Peter (Hexham)
Forth, Eric


Baker, Rt Hon K. (Mole Valley)
Fowler, Rt Hon Sir Norman


Baker, Nicholas (Dorset North)
Fox, Dr Liam (Woodspring)


Baldry, Tony
Fox, Sir Marcus (Shipley)


Banks, Matthew (Southport)
Freeman, Roger


Banks, Robert (Harrogate)
French, Douglas


Bates, Michael
Fry, Peter


Batiste, Spencer
Gale, Roger


Beggs, Roy
Gallie, Phil


Bellingham, Henry
Gardiner, Sir George


Bendall, Vivian
Garel-Jones, Rt Hon Tristan


Beresford, Sir Paul
Garnier, Edward


Blackburn, Dr John G.
Gill, Christopher


Bonsor, Sir Nicholas
Gillan, Cheryl


Booth, Hartley
Goodlad, Rt Hon Alastair


Boswell, Tim
Goodson-Wickes, Dr Charles


Bottomley, Peter (Eltham)
Gorman, Mrs Teresa


Bottomley, Rt Hon Virginia
Gorst, John


Bowis, John
Greenway, Harry (Ealing N)


Boyson, Rt Hon Sir Rhodes
Greenway, John (Ryedale)


Brandreth, Gyles
Griffiths, Peter (Portsmouth, N)


Brazier, Julian
Grylls, Sir Michael


Brooke, Rt Hon Peter
Gummer, Rt Hon John Selwyn


Brown, M. (Brigg & Cl'thorpes)
Hague, William


Browning, Mrs. Angela
Hamilton, Rt Hon Archie (Epsom)


Budgen, Nicholas
Hamilton, Neil (Tatton)


Burns, Simon
Hanley, Jeremy


Burt, Alistair
Hannam, Sir John


Butcher, John
Hargreaves, Andrew


Butler, Peter
Harris, David


Carlisle, John (Luton North)
Haselhurst, Alan


Carlisle, Kenneth (Lincoln)
Hawkins, Nick


Carrington, Matthew
Hawksley, Warren


Carttiss, Michael
Hayes, Jerry


Cash, William
Heald, Oliver


Channon, Rt Hon Paul
Heath, Rt Hon Sir Edward


Churchill, Mr
Heathcoat-Amory, David


Clappison, James
Hendry, Charles


Clark, Dr Michael (Rochford)
Heseltine, Rt Hon Michael


Clarke, Rt Hon Kenneth (Ruclif)
Hicks, Robert


Clifton-Brown, Geoffrey
Higgins, Rt Hon Sir Terence L.


Coe, Sebastian
Hill, James (Southampton Test)


Colvin, Michael
Hogg, Rt Hon Douglas (G'tham)


Congdon, David
Horam, John


Conway, Derek
Hordern, Rt Hon Sir Peter


Coombs, Anthony (Wyre For'st)
Howard, Rt Hon Michael


Coombs, Simon (Swindon)
Howarth, Alan (Strat'rd-on-A)


Cope, Rt Hon Sir John
Hughes Robert G. (Harrow W)


Couchman, James
Hunt, Rt Hon David (Wirral W)


Cran, James
Hunter, Andrew


Currie, Mrs Edwina (S D'by'ire)
Hurd, Rt Hon Douglas


Curry, David (Skipton & Ripon)
Jack, Michael


Davies, Quentin (Stamford)
Jackson, Robert (Wantage)


Davis, David (Boothferry)
Jenkin, Bernard


Day, Stephen
Jessel, Toby


Deva, Nirj Joseph
Johnson Smith, Sir Geoffrey


Dickens, Geoffrey
Jones, Gwilym (Cardiff N)


Dicks, Terry
Jones, Robert B. (W Hertfdshr)


Dorrell, Stephen
Jopling, Rt Hon Michael


Douglas-Hamilton, Lord James
Kellett-Bowman, Dame Elaine


Dover, Den
Key, Robert


Duncan, Alan
Kilfedder, Sir James


Duncan-Smith, Iain
King, Rt Hon Tom


Dunn, Bob
Kirkhope, Timothy


Dykes, Hugh
Knapman, Roger


Eggar, Tim
Knight, Mrs Angela (Erewash)


Elletson, Harold
Knight, Greg (Derby N)


Evans, David (Welwyn Hatfield)
Knight, Dame Jill (Bir'm E'st'n)






Knox, David
Nicholls, Patrick



Kynoch, George (Kincardine)
Nicholson, David (Taunton)


Lait, Mrs Jacqui
Nicholson, Emma (Devon West)


Lamont, Rt Hon Norman
Norris, Steve


Lawrence, Sir Ivan
Onslow, Rt Hon Sir Cranley


Legg, Barry
Oppenheim, Phillip


Lester, Jim (Broxtowe)
Ottaway, Richard


Lidington, David
Page, Richard


Lightbown, David
Paice, James


Lilley, Rt Hon Peter
Patnick, Irvine


Lloyd, Peter (Fareham)
Patten, Rt Hon John


Lord, Michael
Pattie, Rt Hon Sir Geoffrey


Luff, Peter
Pawsey, James


Lyell, Rt Hon Sir Nicholas
Peacock, Mrs Elizabeth


MacKay, Andrew
Pickles, Eric


Maclean, David
Porter, David (Waveney)


McLoughlin, Patrick
Portillo, Rt Hon Michael


McNair-Wilson, Sir Patrick
Powell, William (Corby)


Madel, David
Redwood, John


Maitland, Lady Olga
Renton, Rt Hon Tim


Malone, Gerald
Richards, Rod


Mans, Keith
Riddick, Graham


Marland, Paul
Rifkind, Rt Hon. Malcolm


Marlow, Tony
Robathan, Andrew


Marshall, John (Hendon S)
Roberts, Rt Hon Sir Wyn


Marshall, Sir Michael (Arundel)
Robertson, Raymond (Ab'd'n S)


Martin, David (Portsmouth S)
Robinson, Mark (Somerton)


Merchant, Piers
Roe, Mrs Marion (Broxbourne)


Milligan, Stephen
Rowe, Andrew (Mid Kent)


Moate, Sir Roger
Rumbold, Rt Hon Dame Angela


Monro, Sir Hector
Ryder, Rt Hon Richard


Montgomery, Sir Fergus
Sackville, Tom


Moss, Malcolm
Sainsbury, Rt Hon Tim


Needham, Richard
Scott, Rt Hon Nicholas


Nelson, Anthony
Shaw, David (Dover)


Neubert, Sir Michael
Shaw, Sir Giles (Pudsey)


Newton, Rt Hon Tony
Shephard, Rt Hon Gillian





Shepherd, Richard (Aldridge)
Tracey, Richard


Shersby, Michael
Tredinnick, David


Sims, Roger
Trend, Michael


Skeet, Sir Trevor
Twinn, Dr Ian


Smith, Tim (Beaconsfield)
Vaughan, Sir Gerard


Soames, Nicholas
Viggers, Peter


Spencer, Sir Derek
Waldegrave, Rt Hon William


Spicer, Sir James (W Dorset)
Walden, George


Spicer, Michael (S Worcs)
Walker, Bill (N Tayside)


Spink, Dr Robert
Waller, Gary


Spring, Richard

Wardle, Charles (Bexhill)


Sproat, Iain
Waterson, Nigel


Squire, Robin (Hornchurch)
Watts, John


Steen, Anthony
Wells, Bowen


Stephen, Michael
Wheeler, Rt Hon Sir John


Stern, Michael
Whitney, Ray


Stewart, Allan
Whittingdale, John


Streeter, Gary
Widdecombe, Ann



Sumberg, David
Wiggin, Sir Jerry


Sweeney, Walter
Wilkinson, John


Sykes, John
Willetts, David


Tapsell, Sir Peter
Wilshire, David


Taylor, Ian (Esher)
Winterton, Mrs Ann (Congleton)


Taylor, Rt Hon John D. (Strgfd)
Winterton, Nicholas (Macc'f'ld)


Taylor, John M. (Solihull)
Wolfson, Mark


Taylor, Sir Teddy (Southend, E)
Wood, Timothy


Temple-Morris, Peter
Yeo, Tim


Thomason, Roy
Young, Sir George (Acton)


Thompson, Patrick (Norwich N)



Thornton, Sir Malcolm
Tellers for the Noes:


Thurnham, Peter
Mr. Sydney Chapman and Mr. Andrew Mitchell.


Townsend, Cyril D. (Bexl'yh'th)

Question accordingly negatived.

Clause 48 ordered to stand part of the Bill.

Committee report progress.—[Mr. Arbuthnot.]

To sit again tomorrow.

Orders of the Day — Fishing (Time at Sea)

Mr. Deputy Speaker (Mr. Michael Morris): We now come to the motion on sea fish licensing.

Mr. Bob Cryer: On a point of order, Mr. Deputy Speaker. According to the Order Paper, 
The Instrument has not yet been considered by the Joint
Committee on Statutory Instruments.
The Standing Orders place a duty on that Committee to report to the House. I must register a strong protest that the instrument is being rushed through and that the Committee's report is not available. The Committee is asking the Ministry a number of questions; according to the terms of our operation, we must allow it to reply to those questions, and we cannot do that until next week. I wrote to the Leader of the House asking him to defer the debate in view of the circumstances, but that has not been done.
I should add that the Ministry presented the order in time for it to be submitted to the Joint Committee, but for some reason deliberately delayed its submission.

Mr. Deputy Speaker: I am grateful to the hon. Gentleman for the way in which he has put his point. He will know, however, that the Chair is not responsible for what the House debates.

Mr. James Wallace: On a point of order, Mr. Deputy Speaker.

Mr. Deputy Speaker: I hope that it is a new point of order.

Mr. Wallace: Yes, Mr. Deputy Speaker. As you will know only too well, as the statutory instrument is subject to the negative procedure, you will be obliged to put the Question at 11.30 pm. I am sure, however, that you are also aware that under Standing Order No. 15(2) you can
interrupt the business and the debate shall stand adjourned till the next sitting
owing either to the "lateness of the hour" or the 
importance of the subject matter".
The Division on an amendment to the Finance Bill has already eaten into the time allowed for this debate. Moreover, this is a complex provision that will affect the livelihood of fishermen around our coast—

Mr. Deputy Speaker: Order. The hon. Gentleman seems to be taking precedence over others who wish to speak. We have well over an hour for the debate.

Mr. Andrew F. Bennett: Further to the point of order raised by my hon Friend the Member for Bradford, South (Mr. Cryer), Mr. Deputy Speaker. May I ask you—

Mr. Deputy Speaker: Order. I ruled very fairly on the point raised by the hon. Member for Bradford, South (Mr. Cryer).

Mr. Bennett: Further to that point of order, Mr. Deputy Speaker. You do not have the power to decide what is debated, but you have the power to deprecate the procedure of a Department that does not give the House adequate time to debate the issues involved in Committee. It would be helpful if the Chair were to indicate that it disapproves strongly of a Department trying to short-circuit the work of the Joint Committee on Statutory Instruments.

Mr. Deputy Speaker: I ruled that the Chair had no responsibility for what the House debates.

Dr. Gavin Strang: I beg to move,
That an humble Address be presented to Her Majesty, praying that the Sea Fish Licensing (Time at Sea) (Principles) Order 1993 (S.I., 1993, No. 1196), dated 30th April 1993, a copy of which was laid before this House on 4th May, be annulled.
My hon. Friends have a legitimate point. The way the order has been rushed before the House is unsatisfactory.
I should make it clear at the outset that the House has before it probably the most controversial fishing measure ever to be debated here. Certainly no policy has ever provoked such united opposition from our fishing communities. Everyone who reads the fishing press and, indeed, newspapers generally must be aware that relations between the Government and the fishing industry are at an all-time low. The Government's tie-up policy is the most important factor provoking such strenuous opposition from our fishermen. As an Opposition, we support the complete resistance of the fishermen to the compulsory tie-up policy.
If a conservation measure is to be effective, it has to be implemented with the co-operation of the industry. There is no way this policy will achieve the co-operation of the industry or will prove to be an effective fish conservation measure. That is the first reason why the Government should abandon their policy.
Hon. Members who have taken the trouble to read the order will be forced to conclude that we are being asked to implement a bureaucratic nightmare. In order to fish legally, a fishing vessel has to have a licence. If the order is passed, each licence will stipulate the number of half days which a fishing boat will be allowed to spend at sea. That number will be based on the number of days the vessel spent at sea in 1991. Of course, no fisherman knew in 1991 that the number of days spent at sea would determine how many days he could spend at sea in the future and would become a condition of his licence to fish in our waters.
Many fishermen filled in log books and can document to some extent the number of days spent at sea in 1991, but many cannot. Many did not have to fill in EC log books. For example, fishermen fishing species for which there are no national quotas did not have to provide evidence or complete log books. For many of them, there is no documentary evidence on which to base the number of days which they will be allowed to spend at sea in future. That is acknowledged in paragraph 7 of the order, which is entitled
Time spent fishing under the authority of a licence but not covered by written returns".
When we study that, we find that there is no evidence to be taken into account in some instances. It will be a purely arbitrary decision.
If we read the order further, we see a reference to "Exceptional circumstances". Of course there are exceptional circumstances. If we read through the list, it brings out how unworkable the order will be. I quote one example of exceptional circumstances:
other factors leading to prolonged or repeated absence from work on the part of the master or any member of the crew of the vessel.
Let us be clear about it. Fishermen are like the rest of us. Some are more honest than others or, should I say,


some are more economical with the truth. Harsh decisions will be taken. Clearly, it is intended that if the order is to bite, it has to be restrictive. That means that many fishermen will be treated unfairly in relation to the number of days on which they will be allowed to fish. It is unworkable and unfair.
In the limited time available to me—many hon. Members wish to take part in this very short debate—I shall confine myself to a few questions. Why has the minimum allocation been fixed at 160 days? There must be some basis for that figure—[Interruption.] It is not an EC figure. Indeed, there is a quite different EC figure applying to decommissioning, which is 200 half days, representing 100 full days on which one must fish to be eligible for the EC decommissioning scheme.
I ask for a rough guide, so my question is reasonable. What will be the average number of days at sea for each licence? The minimum, as I said, will be 160, although the maximum, especially in circumstances in which there are two crews, could be higher than 330 days. The fishing industry is entitled to an indication of the average number of days-at-sea allowed under the proposals.
I urge the Minister to give an important undertaking about the application of the regime. Will he undertake that the days-at-sea restrictions will never prevent British fishermen from fulfilling their quotas? In other words, may we be assured that no fisherman will be denied the opportunity to exhaust his national quota as a consequence of the days at sea restrictions?
The fishing industry has for years campaigned for a decommissioning scheme. In those campaigns it has had the support of the Labour party and hon. Members on both sides of the House, including some Conservative Members who represent fishing communities. Over the years, however, the Conservative Government have consistently refused to introduce a decommissioning scheme.
I am glad to see the Minister of Agriculture, Fisheries and Food in his place. In 1990, he said:
I emphasise that decommissioning is not the way to reduce the pressure on fish stocks".
—[Official Report, 13 December 1990; Vol. 182, c. 1171].
Various versions of that statement have been repeated by Ministers in one debate after another. The Government have belatedly introduced what we would describe as a totally inadequate decommissioning scheme. The Select Committee on the European Communities in another place produced a valuable report nearly a year ago describing that scheme as too little, too late.
As a result of an amendment introduced during its passage, the parent legislation to the instrument that we are debating, the Sea Fish (Conservation) Act 1992, states that, before considering what action to take,
Ministers shall first give due consideration to a scheme of decommissioning in order to achieve a significant reduction in the capacity of the fishing fleet.
The Government's miserable decommissioning scheme was announced in February 1992. The Sea Fish (Conservation) Act received Royal Assent in December 1992. What consideration did the Government give to introducing an effective decommissioning scheme before the order now before the House was introduced? Where is the evidence that they gave the matter such consideration? Will their half-hearted decommissioning scheme, as we

term it, achieve a reduction in fishing capacity? That, too, was challenged in the Select Committee report in another place.
Opposition Members are not against just this compulsory tie-up regime. We are against compulsory tie-up as a general proposition. We are against it because it is unfair. Many young skippers have borrowed large sums of money to buy vessels. How can it be right to force them, by such restrictions, into a situation in which they will not be able to earn enough money to make the loan repayments and cover their costs? Compulsory tie-up is economic nonsense. It inherently forces up fishing costs, so it cannot make sense as a long-term policy.
Compulsory tie-up threatens the safety of our fishermen. If a fisherman is fishing on the high seas and the weather suddenly deteriorates, he will go home, knowing that he can go out and fish again the next day. Once this scheme is in operation, however, and fishermen are out in adverse conditions, they will remember that they are only allowed to fish for so many days a year: they may not be able to return the next day. They will therefore try to catch as many fish as possible while they can. It is surely reasonable to argue that this will happen sometimes, so it is also reasonable to say that the regime will put our fishermen's lives at risk.
As anyone who knows the industry will confirm, the very possibility of the scheme coming into operation has led to boats cutting their crew members. Anyone who knows anything about fishing vessels knows that vessels with fewer crew members are not so safe as boats with full crews aboard. On safety grounds alone, therefore, the scheme is wrong.
We have a common fisheries policy, but compulsory tie-up will not apply to French or Spanish fishermen. What chance, then, of the scheme being acceptable to our fishermen when, for historical reasons, they find themselves competing against French, Irish and Spanish fishermen in the seas around this country? It is difficult for them to understand how that can be right under a common fisheries policy.
Conservation can work only if it has the support of the industry. Compulsory tie-up is unworkable. That is why the policy should be stopped in its tracks. The House can do that tonight, so I urge all hon. Members to join the Opposition in the Lobbies to vote down the order.

The Minister of State, Ministry of Agriculture, Fisheries and Food (Mr. David Curry): It is, I think, a matter of agreement that there is a crisis in the fish stocks. We know why. It is because fishermen are hunting a common resource, because there is no entry fee to that resource, because they hunt it competitively, and because, all the time, increased killing power is being brought in by new technology. One has only to look at Fishing News to see advertisements such as "Now fish can't hide"—because of the sheer weight of the technology deployed in the hunt for them.
The technology is improving all the time, and that has led to a crisis in the stocks. It is a worldwide, not just a European, crisis. The House will know that the Newfoundland cod fishery has been halted for two years because of the crisis in the cod stocks there. The Icelanders have cut their quotas radically because of the crisis in the


cod stocks. Ten years ago we pulled about 540,000 tonnes of cod from the Baltic; that quota is now down to 40,000 tonnes.
The crisis in the North sea is equally grave. The purpose of these measures is to protect our fish, by our means, for our fishermen. Even if there were no such thing as a common fisheries policy, even if we had a national 200-mile limit, I would still be here today defending measures to protect British fish. That is the reason for the order. It is not here because it was imposed by Brussels. It is certainly not a case of waiting until the stocks are utterly depleted just because others might not take the same action. We are introducing the measure because our stocks are threatened, and we have a duty to save them.

Mr. Brian Wilson: The Minister has a difficult job, but how can he make global statements about the intensity of the fishing effort in the light of the fact that, until recently, the Government were giving grants in order to intensify the fishing effort? Why, throughout a debate that has now lasted for several years around the Bellwin scheme and related measures, has there been no movement at all towards recognising and supporting low-intensity fishing regimes which apply in certain parts of the country through a regional fishing policy?
The Minister talks about a national fishing policy and declaims against high-intensity fishing, but people with conservation-conscious fishing regimes get no local protection and support against such high intensity fishery regimes. If the hon. Gentleman moved towards a regional fishing policy, what he has just said would have more credibility.

Mr. Curry: The hon. Gentleman raises a point of genuine debate. One could look at fisheries in regional terms, but some in the United Kingdom fish all round the coast and others are regional. There will always be some conflict between them. There is no such thing as a fishing industry in Britain: there are half a dozen fishing industries. One of the problems facing any Fisheries Minister is to try to reconcile the competing claims of the elements of the industry. I recognise that there are difficult choices to be made. It is my job to stand here and defend the one that we have made.
Everywhere, Governments are struggling to find an answer to conservation. That is why they have been. forced to intervene in an industry which is traditionally unregulated, fragmented and individual. We have to consider how to achieve conservation. It could partly be done by telling the industry to depend on self-discipline and self-regulation. That would be an easy solution—it would certainly be more convenient for Ministers—but it does not always work.
The industry is competitive. The producer organisations are not always willing to exercise a discipline over their members that would be helpful. There is a history of evasion. I do not wish to labour the point, but all of us know that that exists. Because fish are a common resource, not a property right, fishermen who act with restraint tend to lose out to those who do not act with restraint.

Mr. Michael Stephen: Does my hon. Friend accept that there is a history of evasion on the French side of the English channel as well, and that it is particularly important for fishermen such as those who operate out of the port of Shoreham and in the English

channel, that the British Government keep a close eye on what is going on in the French ports and ensure that French and other fishermen are not evading the rules while our fishermen are obeying them?

Mr. Curry: I totally agree with my hon. Friend. That is why the first meeting between the new French Minister and my right hon. Friend the Minister of Agriculture, Fisheries and Food and myself was about fisheries. I do not wish to draw up a league table of comparative sin and virtue in the fishing industry, but I recognise clearly that fishermen across the world tend to be a breed; that is why Governments fact similar problems whether in Guinea-Bissau or the west coast of Scotland.
There are various ways of going about conservation. There is self-discipline and technical conservation. But we know that there is no single measure that will do the trick, because of the different ways in which stocks behave. We know that what would be necessary if we were to achieve all our objectives by technical conservation might well be further than the industry would be prepared to go.
We know also that the industry tends to be divided in its reponse to challenges. For example, we are consulting at the moment on whether we should ban the landing of small ungutted rounders—the basic white fish stocks. I need not be a prophet to forecast that we are unlikely to have a favourable response to that from all the different parts of the United Kingdom, although I can see the argument in favour of taking that particular measure.
We have set up a forum with the industry. It has had its first meeting. It has gone into working groups, and we hope to find concrete measures of technical conservation acceptable to everybody. We are willing to commit research money to doing work that might reveal how we can go forward with the industry.

Mr. Alex Salmond: rose—

Mr. Curry: The hon. Member for Edinburgh, East (Mr. Strang) said that many hon. Members wish to speak, and if I give way constantly, it will mop up the entire debate. As the House knows, I usually give way, but in these circumstances of a narrow debate I shall be rather more disciplined.
There is a buy-out. If one goes for a buy-out, one only buys time, because the technology is galloping along behind all the time. Countries with a long history of decommissioning have found that they still need to make further reductions. Decommissioning by itself simply has not delivered the trick. One has to do a lot of decommissioning before one starts cutting into the efficient catches. One tends to catch those who are committing the least attack on the stock. However, we believe that decommissioning has a role. We have accepted that it must form part of the package; that is why £25 million is available for decommissioning.
The order is only part of a package of measures. Days at sea will go back to back with decommissioning to make decommissioning into an effective conservation measure.

Mr. Michael Jopling: Has there been a change in recent years from the position that I remember so well? Every year, when the scientists made their recommendations about stocks, total allowable catches and quotas, the fishermen's lobbies, of which the British was not the least, came to all Ministers in the Council and pleaded for the TACs and quotas to be far


higher than the scientists had recommended. Because of the power of that lobby, Ministers often agreed TACs and quotas at a level higher than they felt was prudent.
Is it not fair to say that, as a result of that pressure and those decisions, the crisis that now confronts the industry is partly due to Ministers over the years and partly due to the irresponsible pressure of fishermen who would not face the crisis in years gone by and who now face a far bigger crisis?

Mr. Curry: My right hon. Friend makes a valid point. It has been the case that Ministers have succumbed to pressures in the past. They have been willing to edge up the TACs and the quotas to meet certain political pressures on them. That is one of the reasons why we have the crisis now. That option is no longer available to us.
The important point about the scheme is that it is a minimal scheme. It will come into operation in September or October. We want to issue the provisional allocations which will then give rise to the definitive allocations. The scheme will not come into force until September or October. It will then stand still until we are satisfied that other member states are fulfilling their obligations to reduce capacity. I emphasise this point. I do not have the slightest intention—the House would not permit me in any case—of inviting the House to take further measures unless it is clear that our Community partners are also taking measures to meet their targets. I have emphasised that from the beginning.
The position is well summed up in a newspaper from which I do not normally quote, and which does not normally mention me with great favour. The editorial in this week's Fishing News says:
More money for decommissioning, much as the industry calls for it, is simply a political non-starter in the current climate.
It then states why there is no chance of getting more money for it. The editorial continues:
On technical measures, again the Government is lukewarm. A major difficulty is the enforcement. The Government knows that fishermen are up to all the tricks in avoiding the impact of technical measures and hence have no faith in them as conservation measures. One reason why technical measures fail is that they are invariably imposed against the advice of the industry which then immediately sets about side-stepping them. The reason they are so often imposed is that fishermen cannot agree on what measures are required.
The editorial points out that a new federation has been formed in the north-east of England which may reflect certain disagreements with the national federation.
The editorial then points out, as the hon. Member for Cunninghame, North (Mr. Wilson) mentioned, the possibility of considering a regional fisheries policy. It concludes:
If the industry is to fight tie-ups effectively and convincingly, it must have a realistic alternative. So far the alternatives put forward do not recognise the political realities and the complexities of fisheries management or the fragmentation and diversity of the industry.
That is the view of the industry's own house magazine.

Mr. Anthony Steen: As a Conservative Member whose understanding of such matter is limited, I wonder whether the Minister could explain something to me. Am I right in thinking that the arrangements that he is announcing tonight will peg the 1993 quota at the 1991

days-at-sea level? Secondly—and more important—is he saying that he will not introduce any new resolution, as he said on 14 July 1992,
unless we are satisfied that member states which share our fishery stocks are taking effective steps to meet their multi-annual guidance programme targets.
—[Official Report, 14 July 1992; Vol. 211, c. 1027.]?

Mr. Deputy Speaker (Mr. Geoffrey Lofthouse): Order. We have already had three interventions, all of them lengthy. We have a very limited time for the debate, and a number of hon. Members are seeking to catch my eye. Long interventions do not help.

Mr. Curry: I can confirm to my hon. Friend that the promises that we gave during the passage of the Sea Fish (Conservation) Act are all being fulfilled. This measure represents a standstill on effort expressed in days at sea based on the 1991 figure. I shall explain what "based" means in a minute. We will not move from that position, and I will not invite the House to tighten that restriction until we are satisfied that other member states are meeting their own targets, set in the EC consultative group. I am delivering on that promise in precise terms.
The Government have a package of measures, including licensing under 10 m, the decommissioning scheme—using which we have to remove 55 per cent. of the target—and days at sea. As I said, it is minimal. We will also reintroduce grants for vessel safety equipment—for fitting radio beacons, for life rafts, for hand-held radios, flares and rockets.
The hon. Member for Edinburgh, East (Dr. Strang) mentioned safety. Let me say to him very seriously that, this year, where there have been no restrictions in fishing, we have already seen a significant loss of life in the fisheries industry. A couple of weeks ago I was in Northern Ireland, where two lives were lost in the constituency of the right hon. Member for Strangford (Mr. Taylor). That happens even when there are no restrictions. Fishing is a hazardous business; there is loss of life in the fishery.
I shall not draw comparisons in respect of lives lost from one year to another, but I do not seriously believe that the present measure will tempt fishermen to risk their lives. I simply do not think that that is the case, and I hope that nobody will blame on this measure every single loss of life that occurs in the fishing industry. That would not be an intellectually honest thing to do.
What will happen now is as follows. The principles order clears the way to send forward the traditional allocations, based on 1991 figures, so that we can make up allocations for people who have been caught by exceptional circumstances in 1991. There will then be a period for informal representations, so that we may be informed of the adjustments that are necessary—for example, for the non-fishing effort.
I have received many representations in respect of boats that do oil rig work or white weeding in the Thames estuary, as well as those engaged in tourist activity and fishing for salmon and migratory trout. We have listened to those representations and will make allowance for such activities. We have also received representations concerning those areas where the data is not complete.

Sir Roger Moate: In reiterating those assurances, which are most helpful, will my hon. Friend confirm that there will be no change whatever with regard to boats under 10 m? While he is collecting information,


can he assure the House that he has no plans, as far ahead as one can see, to apply the days-at-sea restrictions to the very large fleet of boats under 10 m?

Mr. Curry: We have of course completed the licensing of the fleet of boats under 10 m, and we will not introduce days-at-sea restrictions during the lifespan of the current multi-annual guidance programme target. Within that lifespan, we shall be able to review all our conservation measures, so I can give my hon. Friend the assurance that he seeks.
After the fishermen have had a month in which to make their representations, we will analyse those representations over two or three months, and then the full statutory instrument tribunal will be available.
The House will want to know that the Ministry of Agriculture, Fisheries and Food, together with the Secretaries of State for Scotland, for Wales and for Northern Ireland will be appointing Sir Michael Ogden QC as president of the Sea Fish Licence Tribunal. Sir Michael will commence work immediately on a part-time basis to assist us in finalising the arrangements for the tribunal's work and will then preside over its operation later in the year.
He has a great wealth of experience on which to draw, including 13 years as chairman of the Criminal Injuries Compensation Board, acting as the assessor of compensation for miscarriages of justice for the Home Secretary and the Minister of Defence, and sitting as deputy High Court judge in the Queen's bench division in addition to his practice as Queen's counsel. I am confident that he will ensure that fishermen who wish to appeal will receive open, fair and impartial treatment. At the same time, I pay tribute to Judge Michael Coulson for his preliminary work in setting up the tribunal and pending the appointment of the tribunal.
We expect the allocations to operate from early September or October, and the days at sea will not be conterminous with the quota year. That will introduce an additional element of flexibility into the scheme. We have sought to have a flexible, effective and enforceable scheme. All the time spent at sea in 1991 will be counted. We will make an allowance for exceptional circumstances such as a breakdown or family bereavement, and will calculate in half days to permit flexibility to the fisherman. There will be the de minimis allocation. There will be allowances for vessels that are caught by the eight-day tie-up. I have observed the representations that I received on that matter.
We will go no further than this order unless we are satisfied that we are getting effective action from our partners. We will differentiate between sector and stock in deciding how to take the system forward in the circumstances that I have outlined—when our partners are moving forward and we have received from the House and another place the affirmative resolution that we have written into the rules.
The measure will be of practical benefit, because it gives well-defined quantity entitlements to fishermen. It can be targeted by a fishing area and method of fishing, and it is enforceable. It will give an economic benefit by curbing the race to fish and the simultaneous landings than can glut the market and help profitability when the stocks recover and the catch rates increase. It can provide the basis for rationalisation without increasing the exploitation rate.
The measure will be of conservation benefit, because it is essential for decommissioning to be effective. It will be a method of combating black fish landings and discarding when quotas have been exhausted. It will limit the exploitation of vulnerable non-quota fish. I must emphasis that all stocks around the United Kingdom are vulnerable —some are in grave crises. The case for the freeze on effort is absolutely open and shut for all the stocks around the United Kingdom.
The measure is for conversation and the future of the industry. Neither the Labour party nor the industry has offered us an effective alternative. The measure is a British method, devised with the British industry in view to preserve British stocks for British fishermen and carried through by the British Government. It is for the long-term future of the industry, and I urge the House to reject the Labour party's plea to reject it.

Mr. Austin Mitchell: The measure is an abomination, which should not have been proposed to the House in the first place. We should have had a decommissioning scheme four or five years ago, when Labour Members were asking for it, to tackle the problem of conservation directly. The Government will spend a massive amount on this order—the National Federation of Fishermen's Organisations has estimated about £8 million. That could be the kernel for a much bigger decommissioning which could be used more effectively and directly.
The Minister has approached the problems of fishing in an authoritarian way to conceal the consequences of his failure to introduce a decommissioning scheme years ago. Most consequences will be imposed on a fishing industry that will be driven into bankruptcy by having the days at sea limited in this way. I do not want the Minister to get away with the sort of salami tactics that he has adopted tonight, saying that it will be done bit by bit, with more proposals to come later. That is salami-ism.
When the Minister has such powers, they will be implemented. The days at sea will be gradually reduced in the same way as the total allowable catch was reduced, although the Minister told us that total allowable catches were an effective means of conservation. Once he has the powers, it follows automatically that the days at sea will be limited.
We are being asked to sign a blank cheque for a Minister who has demonstrated that he will not listen to the fishing industry. He is using an economically inefficient method of approaching the problems of the industry. It will result in huge sums of capital being tied up for days every year. The order will not be paralleled by European measures.
The Minister said that if the EC did not achieve multi-annual guidance programmes the Government would reconsider. Of course it will achieve them. It is because we are so far behind in ours that he is having to introduce this panic measure now. That is the problem. Will the Minister say that he will not implement the measure until similar measures and the same sort of limitations on days at sea are imposed on our continental competitors? If such limitations are not imposed on our competitors, what kind of spectacle will it be when our


fishing boats are tied up in port and our fishermen watch the fish being caught by French, Dutch and Danish fishermen?
Our fish are caught none the less. The conservation damage is caused none the less. The fish are caught in French, Dutch and Danish nets. They will simply not be caught by British fishermen, to be landed on the British market for the British industry. That is all that the Minister will achieve. He will give a bonanza to the Europeans, who are effectively uncontrolled because policing at their ports is not so strong, effective or clear-cut as in Britain. Can the Minister tell us that the fish that are not caught by our industry and are caught by our competitors will be effectively controlled at the port of landing? Of course he cannot. The Spanish will have a bonanza thanks to the order. The fish will die none the less.
Limiting days at sea is a wrong approach to the problems of the industry and it will bankrupt large swathes of it. The far more effective approach that the Minister should take is to consult the industry and work with it to impose conservation measures by selective gear—by increasing mesh sizes, using square mesh panels and implementing all the measures that the fishermen have proposed over the years.

Mr. Curry: Will the hon. Gentleman give way?

Mr. Mitchell: The Minister did not give way to me, so I shall not give way to him: I am sorry.
Only selective measures can achieve proper and effective conservation. The crude measure that the Government have introduced cannot do so. It will simply drive fishermen, when they are allowed to put to sea, to catch as much as they possibly can of everything they possibly can. That is the inevitable consequence of the measure.
Having obtained the powers, the Minister should consult the industry so that proper and effective conservation can be achieved. He should work out a joint approach with the industry. That is the only way to do it. The Minister is going in for a Ceausescu approach to the problems in the fishing industry.
There is a problem with the vessels that have caught non-pressure stocks and, therefore, have not been required to keep records. Some allowance has to be made for such vessels. The only way to do so is to give them a notional allowance. They cannot be asked to develop records that do not exist.
The Grimsby fishing industry fishes by passive fishing with large mesh sizes of more than 110 mm. It is conservation conscious. It is a conservation-effective industry. When the Minister comes to exercise discretion —as he will, because at some stage he will have to discriminate—he should advance the claims of those sections of the fishing industry that are the most conservation conscious and conservation efficient.
I make a plea to the Minister. The measure came before the spirit of the Newbury noes. It is the sort of authoritarian measure that the Prime Minister has told us, having heard the voice of the people, the Government will avoid. They will consult and work with people. They will not be authoritarian. They will not impose their wishes on the people any more. Why does not the Minister join in that process in dealing with the fishing industry? I give the

assurance that, if he does not, the fishing industry will be sour, intractable and unco-operative and there will be enormous difficulty in implementing the measure.
The order will require massive bureaucracy. It will require much extra spending that would not be necessary if conservation were achieved with the co-operation of the industry. That is my plea to the Minister. He has the powers. He should hold off and co-operate with the industry to get a better deal.
I also make a plea to Conservative Members from fishing ports. There is an enormous weight of responsibility on their shoulders. There are not many Members of Parliament from fishing constituencies. Fishing is a beleaguered industry. Conservative Members would not do this to any other section of the communities that they represent. Those Members would not require pubs, banks or shops to close three or four days a week. They would not dare to do that. Why do that to the fishing industry? Why do they treat the industry in that fashion? The industry does not have many people to speak for it and those Members should have the guts to speak for it tonight.

Mr. David Harris: I do not know why the hon. Member for Great Grimsby (Mr. Mitchell) pointed at me in particular as he concluded his speech, because my opposition to the Sea Fish (Conservation) Act 1992 and to the order is well known and recognised.
I do not record my opposition to the Act in a boastful spirit, but with great sadness. I agreed wholeheartedly with the hon. Member for Edinburgh, East (Dr. Strang) and I also agreed with some of the remarks of the hon. Member for Great Grimsby, although he was far too emotional about the subject.
When the Act was passed, I had hoped that the relevant orders, of which this is the first, would not be introduced to implement the powers under it. I had hoped for a response from my hon. Friend the Minister and from the industry so that we could avoid implementation of the restrictions on days at sea through the imposition of a compulsory tie-up. I honestly do not believe that the orders and the Act represent the right way in which to achieve conservation. If I thought that they would work, I would join my hon. Friend the Minister in the Lobby. I do not believe that they represent the right approach. [Interruption.] I ask Opposition Members to be quiet, please. This is a serious matter and they are not helping the fishing industry.
The need for conservation is beyond doubt. My hon. Friend the Minister is right about that and the industry also acknowledges it. If I am critical of my hon. Friend the Minister—I believe that he has been treated unfairly in this business and that a lot of unnecessary blame has been put on him—I am also disappointed that that industry has not responded with counter-proposals to the tie-up.
When the fishermen held a large rally in Westminster Hall in July, I was greeted with fairly cheap applause, because I had done that popular thing by opposing the then Sea Fish (Conservation) Bill. I said to those fishermen that they should not applaud me because their industry not only had to oppose the Bill but produce counterproposals. It is a source of great sadness to me that it has not done that with a united voice.

Mr. Robert Hughes: Yes, it has.

Mr. Harris: My good friend from Scotland says that it has. I accept that that is true of certain areas and I pay tribute to the leaders of the fishing industry in the south-west, who have produce alternatives, at least tentatively, to solve this difficult subject. They have suggested closed areas in which no fishing should take place in spawning seasons. That is eminently sensible. I also agreed with their suggested technical measures.
The industry, unfortunately, has not spoken with one voice and that is why, over the years, it has done itself a great disservice. The lack of unity has been apparent on many issues apart from conservation. I realise that there are as many different views about fishing as there are fishermen in any port, but the industry must get together, particularly in the light of what the Government are imposing tonight.
If the industry produced viable proposals and if my hon. Friend the Minister and the Government were prepared to listen, we could develop a better means of conserving fish than that proposed.
I welcome the setting up of the conservation forum. I agree that it will not be easy to get agreement in i t, but I again echo what was said by the hon. Member for Great Grimsby—we really must try, even at this late hour, to secure agreement on other ways of approaching conservation.
In commending the order, my hon. Friend the Minister said that its objective was to protect our fish by our means for our fishermen. The difficulty, particularly in a n area like area 7, the south-west, is with the last bit of that objective, "for our fishermen". In area 7, for the most important species, we have in some cases only 12 per cent. of the total allowable catch and the rest belongs, in quota terms, to the boats of other member states. If our fishermen are prevented from fishing to the full, others will go on fishing and fish will not be conserved.
My hon. Friend the Minister is going to get up and I will certainly give way to him. I pay tribute to him because he has said that he will recognise these regional differences, and that is a very important point. I come back to a point made by the hon. Member for Cunninghame, North (Mr. Wilson). We cannot impose a national system of control here. We need to approach the problem in a regional fashion. The situation in my part of the world is completely different from the situation in Scotland. We must therefore have regional flexibility. I know that my hon. Friend is working on that, and I think that he wants to intervene.

Mr. Curry: I am grateful to my hon. Friend. I have no wish to take up his time. On the share of stocks in the south-west, I recognise that it is a different fishery from the fishery around the north-east coast, areas 4 and 6, where the stocks are the most vulnerable, but the 12 per cent. figure must be treated with some care. The United Kingdom's share is as follows: sole in the western channel, 59 per cent.; sole in the Bristol channel, 28 per cent.; plaice in the English channel, 29 per cent.; nephrops in area 7, 33 per cent.; and mackerel in the western area, 56 per cent. Boats in the south-west catch much higher-value species than do those fishing off most of the coasts.

Mr. Harris: I accept that, and my hon. Friend will note that I picked my words with some care and used the phrase "for the most important species". But the point has been made.
After dealing with the general point, I turn to some detailed criticisms of the order. The first point has already been made fairly by the hon. Member for Edinburgh, East: how on earth we are to give days at sea to those people who have no track record through log books? That difficulty will cause enormous friction because to some extent the decision will be arbitrary.
There is also the cost of implementation. The Ministry has used a figure of £1·5 million a year, but I believe that the cost will be much higher than that given in the explanatory memorandum.
Then there is the biggest issue of all for me when it comes to unfairness—the wretched flag of convenience quota-hoppers. How on earth are we to impose days at sea restrictions on boats that come out of Corunna or Vigo? We cannot put those restrictions on them, and my hon. Friend and his officials know that. Therefore, I am not prepared, on that ground alone, to support a measure in which we agree that, although the quota-hoppers are covered, there is not yet a means of controlling them but in which we are going to impose restrictions on my fishermen from Newlyn and fishermen from other ports around Cornwall. For that reason alone, I could not, in all conscience, vote with my hon. Friend the Minister, although I have the greatest admiration for him.
I beg my hon. Friend just to think again on this matter. There is still time. I beg the industry to give up the protests, put them on one side and start serious talks with the Ministry so that at last we can find a sensible solution to what is undoubtedly a difficult and complex problem.

Mr. James Wallace: The hon. Member for St. Ives (Mr. Harris) is right to say that there should be serious talks. However, for the talks ever to take place, the Government must show a willingness to retreat from the hard-line attitude that they have taken, with their claims that effort limitation is the only way that they will achieve the necessary targets. They know that effort limitation will do precious little for conservation. The Minister talked about discards. I challenge him to show me one paragraph in the order that will make the least difference to the number of discards that are going back into the sea.
The Liberal Democrats believe that the route that the Government have taken is an inefficient way to pursue conservation ends. It ties up the capital of business men for days in a way that would be unacceptable in any other industry. The people employed on vessels will be unemployed for those days, and we know of the difficulties that many have experienced when they have tried to draw unemployment benefit for those days.
The Government's route is also an inflexible way to pursue conservation objectives. The hon. Member for St. Ives spoke of the western approaches. My understanding is that although, a year to 18 months ago, there was a view that boats should be tied up 30 per cent. of the days to meet conservation ends, that has now been reduced to 8 per cent. There is no way that the order can take any account of those changes.
The Minister said that, when the Sea Fish (Conservation) Act 1992 was being drawn up, the quota for haddock in the North sea was small. That quota has now gone up from 55,000 tonnes to 133,000 tonnes, but we still have an inflexible system. The Minister said that he


would not wish to see quota uncaught because boats were obliged to stay in port. I hope that, when he answers, he will tell us where that promise is implemented in the orders. Having a calendar year for days-at-sea restrictions that differs from the one for quotas will lead to confusion rather than to the flexibility that the Minister claimed that he wants.
Furthermore, the situation facing the pelagic sector shows how ludicrous the order is. We are told that the sector will be affected by days-at-sea restrictions as well, but why? The Scottish Pelagic Fishermen's Association has sent to some hon. Members a letter that it recently received, dated 11 May, from the Sea Fish Industry Authority, which says:
on the basis of the information to hand, it seems as though the Pelagic segment has already reduced capacity since 1.1.92 sufficiently to meet the MAGP requirements.
Why, in heaven's name, is that sector having restrictions imposed on it when it has met multi-annual guidance programme requirements and when, on the evidence of last year's figures, it was not able to catch all the herring and mackerel in the quota when it had no restrictions? How will it be able to do that when it does have restrictions? The Minister must answer that fundamental question.
I entirely endorse the opening remarks of the hon. Member for Edinburgh, East. He asked what was the logic of 160 half days. The Minister did not tell us. I suspect that it is a period that would not allow any boat to be viable if that were all the time that it was allowed to go out. However, there will be a number of add-ons.
The Minister reaffirmed his commitment that there will be no order to reduce the number of days agreed for 1993 unless there is clear evidence that other countries are effectively implementing their MAGP targets as well. While our fishermen are restricted, it does not matter that other European countries are not effectively pursuing their MAGP targets, so while our fishermen are tied up, the fishermen of other EC states—Spain, France and Denmark—will be able to carry on fishing. Just because the Minister says that he will not bring in anything more restrictive, that does not hide the fact that there is no way in which our boats can increase the number of days when they can go to sea.
We shall have fixed and rigid restrictions which will mean the opposite of conservation for those who have relatively few days at sea. Those who in 1991 were running double crews and were at sea all the time will benefit, whereas the Clyde fishermen who tie up over the weekends will lose out. The boats with fewer days at sea will find that the monetary value of their licences will be devalued.
When the Bill was passed in the other place, their Lordships insisted that the order could not be introduced until the Government had given due consideration to the contribution of decommissioning in promoting conservation. The Government believe that a few words in the preamble to the order represent a magic incantation which will get around the statutory hurdle. The Minister has a duty to tell the House what consideration the Government gave to decommissioning.
Given the feelings in the industry, it is inevitable that someone will take the decision to judicial review. Following the decision in the House of Lords in the case

of Pepper v. Hart that proceedings in the House can be used in evidence, the Minister should tell us what consideration was given to decommissioning.
The hon. Member for St. Ives highlighted the fact that it will be difficult to control foreign vessels or those flying flags of convenience coming out of other ports. They are getting a bonus from the orders as they are getting 1988 as their base year; they are having their cake and eating it and the Government have not explained why.
There has been no explanation of whether oral evidence will be acceptable in the absence of written documentation. We believe that it should be and we hope that when regulations on the sea fish tribunals are introduced, it will be made perfectly clear that oral evidence will be acceptable.
What will we be saying that our fishermen should have been doing? The scheme envisages that British fishermen are a race apart, and in a sense they are, but they will need a practising lawyer on board to decipher some aspects of the order. In 1991, they needed to be fortune tellers to know that what they had to keep then would apply to them in 1993, and they will have to be the most brilliant businessmen to squeeze enough out of 160 half days a year to remain commercially viable.
The order is no way to approach fisheries conservation. The industry has called year after year for decommissioning. It has been supported by right hon. and hon. Members on both sides of the House. The fact that for years the Government were deaf to their calls means that the industry is now being lumbered with a most inflexible and inefficient method of conservation which I believe will sour relationships between the Government and industry when what is needed is constructive dialogue.

Rev. Ian Paisley: Hon. Members have mentioned the recent tragedy in Northern Ireland. I salute the memory of those two young men, one of whom was my constituent from Bushmills in County Antrim. He was a young man who wanted to fish from his earliest days. He went straight from school into a Government training scheme and for the seven years of his working life was engaged in fishing. He met with a tragic freak wave which swept him and his companion to their deaths.
The fishermen of Northern Ireland and their federation have stated that if the order is passed it will increase tragedies among fishermen by requiring them to fish in adverse weather conditions as there will be times when the only days when fishermen are permitted to fish will be those when the weather is bad. We have enough problems in the fishing industry without sending men out in adverse conditions.
The order will cause widespread unemployment among fishermen and the fish processing industry. It will also disadvantage British fishermen. I cannot accept the Minister's argument that he is preserving British fish; he is preserving British fish for other European countries to fish them. The Minister's argument strikes me as very preverse.
The order will introduce an unjust system, forcing our fishermen to fish in bad weather at a time when United Kingdom fishermen must comply rigidly with the quotas —far more rigidly than any other EC fishing nation. It is no use the Minister talking to the French ambassador; French fishermen will continue to fish in our waters while our boats are tied up. The Minister should withdraw the



order and ensure that it is not introduced until all EC countries submit to the same rules. He should tell those countries that they would not have a common fisheries industry without our waters; the British waters made that industry. The money to be spent on civil servants to operate the scheme should be transferred to the decommissioning scheme.
If we introduce conservation in the way suggested by the order, our fishing industry will have a sad future. The fishermen of Northern Ireland are totally opposed to the order.

Mr. Elliot Morley: It is a great shame that there has been so little time for this important debate, in which many hon. Members wanted to speak. Even after tonight, the issue will not go away; it has already been debated for a long time.
The Opposition cannot support the order, for reasons given by hon. Members on both sides of both Houses. It is both bureaucratic and expensive. Will the Government provide financial help for the many fishermen who will have to appeal against it? Will they note rulings made in the European Court about similar measures relating to allocation of days at sea for those who have no track records? The measure will not necessarily meet conservation objectives; it will discriminate against fishermen who have put less pressure on fish stocks, while rewarding those who have done the opposite. As has already been said, it has implications for crewing and safety, and it is not supported by any section of the industry.
The decommissioning element is grossly inadequate, amounting to £25 million over three years. The French fleet was given that much in a single year. There is also the issue of complying with assurances given during the passage of the Sea Fish (Conservation) Act 1992. Under new section (6D)—the Act amends an earlier 1967 Act —before considering the measure relating to days at sea,
Ministers shall first give due consideration to a scheme of decommissioning in order to acheive a significant reduction in the capacity of the fishing fleet.
Where is that consideration? Where is the "significant reduction" in the fleet? A paltry £25 million goes nowhere near such an objective.
What about the Minister's assurance that there would be a level playing field between our fishing fleet and those of other European member states—an assurance that he gave the House on 14 July last year? While our fishermen face being tied up in port, their competitors are free to fish as widely as they wish.

Mr. Eddie McGrady: Will the hon. Gentleman give way?

Mr. Morley: I am sorry; there is not enough time.
Because foreign fleets receive more generous funding, they are in a position to move into our fleets—to buy up British licences and expand their quota-hopping operations.
We believe that there is an alternative to this measure: working with the industry to introduce technical conservation measures, gear types, selectivity, and bans on industrial fishing. The hon. Member for St. Ives (Mr. Harris) pointed out that fishermen themselves have suggested sensible measures, advocating retention lengths,

minimum landing sizes and a ban on twin rigs. I believe that it is possible, by co-operating with the fishermen, to introduce measures that will work.
The measure is a marine set-aside without compensation. It is institutionalised bankruptcy for our fishing fleet. Many people have debts, having taken out loans to increase their capacity, supported by the very Government who are taking away the possibility for them to earn a decent living.
I urge all hon. Members to vote against the order. Let us reject it, not in a negative way but in a positive way to bring back to the House a decent measure which meets conservation objectives, which has the co-operation of all fishermen, which has the support of all sides of the House and which will meet the objects of a substainable fishing industry, which the order fails to do.

Mr. Salmond: On a point of order, Mr. Deputy Speaker. Feelings are running very high on this issue. Many hon. Members from fishing constituences have been unable to speak. Clearly the debate has not been extensive enough, given the importance of the issue. May I ask you to exercise your powers under Standing Order 15(2) and adjourn the debate to the next sitting day?

Mr. Deputy Speaker: I am not prepared to exercise those powers.

The Parliamentary Under-Secretary of State for Scotland (Sir Hector Monro): I should say to the hon. Member for Glanford and Scunthorpe (Mr. Morley) that the only way to bankrupt the fishing industry is to ensure that there are no fish. That is what is so sad about the debate. As one who has been involved in conservation legislation, both private Members' Bills and Government legislation, in the House over 20 years or more, I find it sad to hear Opposition Members bandying the word "conservation" about while not being prepared to put forward any scheme that will work.
If we are to maintain a sound fishing industry, it is essential that we conserve fish. On legislation dealing with livestock, we have always taken scientific advice. The scientific advice in the fishing world shows that our stocks are vulnerable and that we have to conserve them very carefully. We must accept that neither total allowable catches nor the quota can do the job alone, and that the methods in the order are the best way forward.

Mr. Phil Gallie: My hon. Friend talks of conservation. In the Clyde, the fishermen took heed of that. They imposed their own weekend ban over a number of years. Now that means that they have not got days at sea recorded in 1991. Will my hon. Friend confirm that consideration will be given to that point and that he will take positive account of the days when they could have been at sea which were not recorded because of that self-imposed ban for conservation purposes?

Sir Hector Monro: The fishermen in the Clyde will be able to have the same fishing pattern as they did in 1991 but, as they have a statutory ban, which is an exceptional circumstance, we can consider it under paragraph 9(2)(d). We shall certainly consider it carefully under the special exception clause.

Mr. McGrady: rose—

Sir Hector Monro: The main message that Opposition Members do not seem to appreciate is that there will not be a reduction in fishing effort; there will merely be a standstill on where we were in 1991. We would not reduce the amount of fishing effort without bringing forward an affirmative resolution. There is no possibility of a reduction in fishing effort taking place without further debate in the House.

Mr. McGrady: rose—

Sir Hector Monro: I hope, too, that Opposition Members will appreciate the exceptional care and trouble that will be taken in reaching the days at sea arrangement. The Department will be writing too all licence holders, who will have time to respond to the details on the computer printout and subsequently have discussions with the Department before the number of days at sea on the licence is fixed. Subsequent to that, they will have a right of appeal to the tribunal.
We had demonstrations last winter about running out of quota. The worst way to react now would be to have a free-for-all, with no check on fishing around our coast. We are putting forward a practical conservation package. It would be foolhardy to throw that out tonight. I hope that the House will support the order, in the interests of conservation.

Question put:—

The House divided: Ayes 258, Noes 283.

Division No. 265]
[11.30 pm


AYES


Abbott, Ms Diane
Carlile, Alexander (Montgomry)


Adams, Mrs Irene
Chisholm, Malcolm


Ainger, Nick
Clark, Dr David (South Shields)


Ainsworth, Robert (Cov'try NE)
Clarke, Eric (Midlothian)


Allen, Graham
Clarke, Tom (Monklands W)


Alton, David
Clelland, David


Anderson, Donald (Swansea E)
Clwyd, Mrs Ann


Anderson, Ms Janet (Ros'dale)
Coe, Sebastian


Armstrong, Hilary
Cohen, Harry


Ashdown, Rt Hon Paddy
Connarty, Michael


Ashton, Joe
Cook, Frank (Stockton N)


Austin-Walker, John
Cook, Robin (Livingston)


Barnes, Harry
Corston, Ms Jean


Barron, Kevin
Cousins, Jim


Battle, John
Cryer, Bob


Bayley, Hugh
Cunningham, Jim (Covy SE)


Beggs, Roy
Cunningham, Rt Hon Dr John


Beith, Rt Hon A. J.
Dafis, Cynog


Bell, Stuart
Darling, Alistair


Benn, Rt Hon Tony
Davidson, Ian


Bennett, Andrew F.
Davies, Bryan (Oldham C'tral)


Benton, Joe
Davies, Rt Hon Denzil (Llanelli)


Berry, Dr. Roger
Davies, Ron (Caerphilly)


Betts, Clive
Denham, John


Blunkett, David
Dewar, Donald


Boateng, Paul
Dixon, Don


Boyce, Jimmy
Dobson, Frank


Boyes, Roland
Donohoe, Brian H.


Bradley, Keith
Dowd, Jim


Bray, Dr Jeremy
Dunnachie, Jimmy


Brown, Gordon (Dunfermline E)
Dunwoody, Mrs Gwyneth


Brown, N. (N'c'tle upon Tyne E)
Eagle, Ms Angela


Bruce, Malcolm (Gordon)
Eastham, Ken


Burden, Richard
Enright, Derek


Byers, Stephen
Etherington, Bill


Callaghan, Jim
Evans, John (St Helens N)


Campbell, Mrs Anne (C'bridge)
Ewing, Mrs Margaret


Campbell, Menzies (Fife NE)
Fatchett, Derek


Campbell, Ronnie (Blyth V)
Field, Frank (Birkenhead)


Campbell-Savours, D. N.
Fisher, Mark


Canavan, Dennis
Flynn, Paul


Cann, Jamie
Foster, Rt Hon Derek





Foster, Don (Bath)
Marshall, Jim (Leicester, S)


Foulkes, George
Martin, Michael J. (Springburn)


Fraser, John
Martlew, Eric


Fyfe, Maria
Maxton, John


Galbraith, Sam
Meacher, Michael


Gapes, Mike
Michael, Alun


Garrett, John
Michie, Bill (Sheffield Heeley)


George, Bruce
Michie, Mrs Ray (Argyll Bute)


Gerrard, Neil
Milburn, Alan


Gilbert, Rt Hon Dr John
Miller, Andrew


Godsiff, Roger
Mitchell, Austin (Gt Grimsby)


Golding, Mrs Llin
Moonie, Dr Lewis


Gould, Bryan
Morgan, Rhodri


Graham, Thomas
Morley, Elliot


Grant, Bernie (Tottenham)
Morris, Estelle (B'ham Yardley)


Griffiths, Nigel (Edinburgh S)
Morris, Rt Hon J. (Aberavon)


Griffiths, Win (Bridgend)
Mowlam, Marjorie


Grocott, Bruce
Mudie, George


Gunnell, John
Mullin, Chris


Hain, Peter
Murphy, Paul


Hall, Mike
O'Brien, Michael (N W'kshire)


Hanson, David
O'Hara, Edward


Harman, Ms Harriet
Olner, William


Harris, David
O'Neill, Martin


Harvey, Nick
Paisley, Rev Ian


Heppell, John
Parry, Robert


Hicks, Robert
Pendry, Tom


Hill, Keith (Streatham)
Pickthall, Colin


Hinchliffe, David
Pike, Peter L.


Hoey, Kate
Pope, Greg


Hogg, Norman (Cumbernauld)
Porter, David (Waveney)


Hood, Jimmy
Powell, Ray (Ogmore)


Hoon, Geoffrey
Prentice, Ms Bridget (Lew'm E)


Howarth, George (Knowsley N)
Prentice, Gordon (Pendle)


Howells, Dr. Kim (Pontypridd)
Prescott, John


Hoyle, Doug
Primarolo, Dawn


Hughes, Kevin (Doncaster N)
Purchase, Ken


Hughes, Robert (Aberdeen N)
Quin, Ms Joyce


Hughes, Simon (Southwark)
Randall, Stuart


Hutton, John
Raynsford, Nick


Jackson, Glenda (H'stead)
Reid, Dr John


Jackson, Helen (Shef'ld, H)
Rendel, David


Jamieson, David
Robertson, George (Hamilton)


Jones, Barry (Alyn and D'side)
Robinson, Geoffrey (Co'try NW)


Jones, Ieuan Wyn (Ynys Môn)
Roche, Mrs. Barbara


Jones, Jon Owen (Cardiff C)
Rogers, Allan


Jones, Lynne (B'ham S O)
Rooker, Jeff


Jones, Martyn (Clwyd, SW)
Rooney, Terry


Jones, Nigel (Cheltenham)
Ross, Ernie (Dundee W)


Jowell, Tessa
Rowlands, Ted


Kaufman, Rt Hon Gerald
Ruddock, Joan


Keen, Alan
Salmond, Alex


Kennedy, Charles (Ross,C&S)
Sheerman, Barry


Kennedy, Jane (Lpool Brdgn)
Sheldon, Rt Hon Robert


Khabra, Piara S.
Shore, Rt Hon Peter


Kilfoyle, Peter
Short, Clare


Kinnock, Rt Hon Neil (Islwyn)
Simpson, Alan



Kirkwood, Archy
Skinner, Dennis


Leighton, Ron
Smith, Andrew (Oxford E)


Lewis, Terry
Smith, C. (Isl'ton S & F'sbury)


Livingstone, Ken
Smith, Rt Hon John (M'kl'ds E)


Lloyd, Tony (Stretford)
Smith, Llew (Blaenau Gwent)


Llwyd, Elfyn
Soley, Clive


Loyden, Eddie
Spearing, Nigel


Lynne, Ms Liz
Spellar, John


McAllion, John
Steel, Rt Hon Sir David


McAvoy, Thomas
Steinberg, Gerry


McCartney, Ian
Stevenson, George


Macdonald, Calum
Strang, Dr. Gavin


McFall, John
Taylor, Mrs Ann (Dewsbury)


McGrady, Eddie
Taylor, Rt Hon John D. (Strgfd)


McKelvey, William
Taylor, Matthew (Truro)


Mackinlay, Andrew
Taylor, Sir Teddy (Southend, E)


Maclennan, Robert
Tipping, Paddy


McMaster, Gordon
Turner, Dennis


Madden, Max
Tyler, Paul


Mahon, Alice
Vaz, Keith


Mandelson, Peter
Walker, Rt Hon Sir Harold


Marek, Dr John
Wallace, James


Marshall, David (Shettleston)
Walley, Joan






Wardell, Gareth (Gower)
Wise, Audrey


Wareing, Robert N
Worthington, Tony


Watson, Mike
Wray, Jimmy


Welsh, Andrew
Wright, Dr Tony


Wicks, Malcolm
Young, David (Bolton SE)


Williams, Rt Hon Alan (Sw'n W)



Williams, Alan W (Carmarthen)
Tellers for the Ayes:


Wilson, Brian
Mr. Eric Illsley and Mr. Alan Meale.


Winnick, David





NOES


Ainsworth, Peter (East Surrey)
Douglas-Hamilton, Lord James


Aitken, Jonathan
Dover, Den


Alison, Rt Hon Michael (Selby)
Duncan, Alan


Allason, Rupert (Torbay)
Duncan-Smith, Iain


Amess, David
Dunn, Bob


Ancram, Michael
Dykes, Hugh


Arnold, Jacques (Gravesham)
Eggar, Tim


Arnold, Sir Thomas (Hazel Grv)
Elletson, Harold


Ashby, David
Emery, Rt Hon Sir Peter


Aspinwall, Jack
Evans, David (Welwyn Hatfield)


Atkinson, Peter (Hexham)
Evans, Jonathan (Brecon)


Baker, Rt Hon K. (Mole Valley)
Evans, Nigel (Ribble Valley)


Baker, Nicholas (Dorset North)
Evans, Roger (Monmouth)


Baldry, Tony
Evennett, David


Banks, Matthew (Southport)
Faber, David


Banks, Robert (Harrogate)
Fabricant, Michael


Bates, Michael
Fairbairn, Sir Nicholas


Batiste, Spencer
Field, Barry (Isle of Wight)


Bellingham, Henry
Fishburn, Dudley


Bendall, Vivian
Forman, Nigel


Beresford, Sir Paul
Forsyth, Michael (Stirling)


Blackburn, Dr John G.
Forth, Eric


Bonsor, Sir Nicholas
Fowler, Rt Hon Sir Norman


Booth, Hartley
Fox, Dr Liam (Woodspring)


Boswell, Tim
Fox, Sir Marcus (Shipley)


Bottomley, Peter (Eltham)
Freeman, Roger


Bottomley, Rt Hon Virginia
French, Douglas


Bowis, John

Fry, Peter


Boyson, Rt Hon Sir Rhodes
Gale, Roger


Brandreth, Gyles
Gallie, Phil


Brazier, Julian
Garel-Jones, Rt Hon Tristan


Bright, Graham
Garnier, Edward


Brooke, Rt Hon Peter
Gillan, Cheryl


Brown, M. (Brigg & Cl'thorpes)
Goodlad, Rt Hon Alastair


Browning, Mrs. Angela
Goodson-Wickes, Dr Charles


Budgen, Nicholas
Gorst, John


Burns, Simon
Greenway, Harry (Ealing N)


Burt, Alistair
Greenway, John (Ryedale)


Butcher, John
Griffiths, Peter (Portsmouth, N)


Butler, Peter
Grylls, Sir Michael


Carlisle, John (Luton North)
Gummer, Rt Hon John Selwyn


Carlisle, Kenneth (Lincoln)
Hague, William


Carrington, Matthew
Hamilton, Rt Hon Archie (Epsom)


Carttiss, Michael
Hamilton, Neil (Tatton)


Channon, Rt Hon Paul
Hanley, Jeremy


Chapman, Sydney
Hannam, Sir John


Churchill, Mr
Hargreaves, Andrew


Clappison, James
Haselhurst, Alan


Clark, Dr Michael (Rochford)
Hawkins, Nick


Clarke, Rt Hon Kenneth (Ruclif)
Hayes, Jerry


Clifton-Brown, Geoffrey
Heald, Oliver


Colvin, Michael
Heath, Rt Hon Sir Edward


Congdon, David
Heathcoat-Amory, David


Conway, Derek
Hendry, Charles


Coombs, Anthony (Wyre For'st)
Heseltine, Rt Hon Michael


Coombs, Simon (Swindon)
Higgins, Rt Hon Sir Terence L.


Cope, Rt Hon Sir John
Hill, James (Southampton Test)


Couchman, James
Hogg, Rt Hon Douglas (G'tham)


Cran, James
Horam, John


Currie, Mrs Edwina (S D'by'ire)
Hordern, Rt Hon Sir Peter


Curry, David (Skipton & Ripon)
Howard, Rt Hon Michael


Davies, Quentin (Stamford)
Howarth, Alan (Strat'rd-on-A)


Davis, David (Boothferry)
Howell, Rt Hon David (G'dford)


Day, Stephen
Hughes Robert G. (Harrow W)


Deva, Nirj Joseph
Hunt, Rt Hon David (Wirral W)


Devlin, Tim
Hunter, Andrew


Dickens, Geoffrey
Hurd, Rt Hon Douglas


Dicks, Terry
Jack, Michael


Dorrell, Stephen
Jackson, Robert (Wantage)





Jenkin, Bernard
Rifkind, Rt Hon. Malcolm


Johnson Smith, Sir Geoffrey
Robathan, Andrew


Jones, Gwilym (Cardiff N)
Roberts, Rt Hon Sir Wyn


Jones, Robert B. (W Hertfdshr)
Robertson, Raymond (Ab'd'n S)


Jopling, Rt Hon Michael
Robinson, Mark (Somerton)


Kellett-Bowman, Dame Elaine

Roe, Mrs Marion (Broxbourne)


Key, Robert
Rowe, Andrew (Mid Kent)


Kilfedder, Sir James
Rumbold, Rt Hon Dame Angela


King, Rt Hon Tom
Ryder, Rt Hon Richard


Kirkhope, Timothy
Sackville, Tom


Knapman, Roger
Sainsbury, Rt Hon Tim


Knight, Mrs Angela (Erewash)
Scott, Rt Hon Nicholas


Knight, Greg (Derby N)
Shaw, David (Dover)


Knight, Dame Jill (Bir'm E'st'n)
Shaw, Sir Giles (Pudsey)


Knox, David
Shephard, Rt Hon Gillian


Kynoch, George (Kincardine)
Shersby, Michael


Lait, Mrs Jacqui
Sims, Roger


Lamont, Rt Hon Norman
Skeet, Sir Trevor


Lawrence, Sir Ivan
Smith, Tim (Beaconsfield)


Legg, Barry
Soames, Nicholas


Lennox-Boyd, Mark
Spencer, Sir Derek


Lester, Jim (Broxtowe)
Spicer, Sir James (W Dorset)


Lidington, David
Spicer, Michael (S Worcs)


Lightbown, David
Spink, Dr Robert


Lilley, Rt Hon Peter
Spring, Richard


Lloyd, Peter (Fareham)
Sproat, Iain


Lord, Michael
Squire, Robin (Hornchurch)


Luff, Peter
Stanley, Rt Hon Sir John


Lyell, Rt Hon Sir Nicholas
Steen, Anthony


MacGregor, Rt Hon John
Stephen, Michael


Maclean, David
Stern, Michael


McLoughlin, Patrick
Stewart, Allan



McNair-Wilson, Sir Patrick
Streeter, Gary


Madel, David
Sumberg, David


Maitland, Lady Olga
Sweeney, Walter


Major, Rt Hon John
Sykes, John



Malone, Gerald
Tapsell, Sir Peter


Mans, Keith
Taylor, Ian (Esher)


Marland, Paul
Taylor, John M. (Solihull)


Marshall, John (Hendon S)
Temple-Morris, Peter


Marshall, Sir Michael (Arundel)
Thomason, Roy


Martin, David (Portsmouth S)
Thompson, Patrick (Norwich N)



Mawhinney, Dr Brian
Thornton, Sir Malcolm


Mellor, Rt Hon David
Thurnham, Peter


Merchant, Piers
Townsend, Cyril D. (Bexl'yh'th)


Milligan, Stephen
Tracey, Richard


Mitchell, Andrew (Gedling)
Tredinnick, David


Monro, Sir Hector
Trend, Michael


Montgomery, Sir Fergus
Twinn, Dr Ian


Moss, Malcolm
Vaughan, Sir Gerard


Needham, Richard
Viggers, Peter


Nelson, Anthony
Waldegrave, Rt Hon William


Neubert, Sir Michael
Walden, George


Newton, Rt Hon Tony
Walker, Bill (N Tayside)


Nicholls, Patrick
Waller, Gary


Nicholson, David (Taunton)
Wardle, Charles (Bexhill)


Nicholson, Emma (Devon West)
Waterson, Nigel


Norris, Steve
Watts, John


Onslow, Rt Hon Sir Cranley
Wells, Bowen


Oppenheim, Phillip
Wheeler, Rt Hon Sir John


Ottaway, Richard
Whitney, Ray


Page, Richard
Whittingdale, John


Paice, James
Widdecombe, Ann


Patnick, Irvine
Wiggin, Sir Jerry


Patten, Rt Hon John
Willetts, David


Pattie, Rt Hon Sir Geoffrey
Wilshire, David


Pawsey, James
Wolfson, Mark


Peacock, Mrs Elizabeth
Wood, Timothy


Pickles, Eric
Yeo, Tim


Portillo, Rt Hon Michael
Young, Sir George (Acton)


Powell, William (Corby)



Redwood, John
Tellers for the Noes:


Renton, Rt Hon Tim
Mr. James Arbuthnot and Mr. Andrew Mackay.


Richards, Rod



Riddick, Graham

Question accordingly negatived.

Orders of the Day — CARDIFF BAY BARRAGE BILL

Motion made, and Question put,
That, at the sitting on Monday 17th May, the Speaker shall put the Question necessary to dispose of proceedings on the Motion moved by Mr James Arbuthnot on 2nd April relating to Cardiff Bay Barrage Bill not later than half-past Eleven o'clock or one and a half hours after the resumption of those proceedings, whichever is the earlier; and the said proceedings may continue after the expiry of the time for opposed business.— [Mr. Robert G. Hughes.]

Hon. Members: Object.

Orders of the Day — Co-operatives (European Community)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Robert G. Hughes.]

Mr. Dennis Turner: The importance attached by the British co-operative movement to a European co-operative statute is shown tonight by the presence of the co-operative parliamentary group, with the exception of one member, from the House of Commons. We have 14 members from this House and four members from the other place.
Our task in this debate is to ascertain the Government's attitude to a European statute and to persuade the Minister to say that the Government have no serious objections to a European legal framework for cooperatives and will ultimately support the approval of the statute in the Council of Ministers.
I hope that it will be helpful if I briefly set out the background to the creation of the European co-operative statute. In 1989, the European commission became aware of a potential problem in the Community for co-operatives wishing to enter cross-border trading under existing and future regulations. It was also anxious to ensure that co-operatives were aware of their eligibility for finance under the co-operative regional and social fund. The Commission stated:
the question may therefore arise at Community level of harmonising certain national provisions in order to improve the conditions of access to European markets for mutual societies, co-operatives and similar enterprises.
For that reason, it was willing to consider whether a special statute should be set up for the co-operative and mutual sector
which would facilitate grouping operations, in conditions similar to those available to public limited companies under the European company proposal.
In other words, to use last year's buzz phrase, it would create a level playing field within the single market.
The statute would allow the creation of a supranational co-operative society by two or more existing national co-operative societies as long as each had its headquarters in a different member state and had a minimum of 1,000 ecu. The statute passed through the European Parliament on 22 January, but it still has to go through the Council of Ministers.

Mr. Gordon McMaster: I congratulate my hon. Friend on his excellent speech. Is he aware that the Co-operative Insurance Society represents 14 per cent. of the total insurance market in Europe and that an astonishing 4 million people are represented by it?

Mr. Turner: I thank my hon. Friend for that comment. I am sure that the importance of co-operation in insurance is recognised, as my hon. Friend said.

Mr. Alan Keen: Is my hon. Friend aware that there are 45,000 worker and producer co-operatives in the EC, which employ almost 750,000 people?

Mr. Turner: That information speaks for itself and, again, shows the importance of the co-operative sector in our economy.

Mr. Barry Sheerman: Is my hon. Friend aware that there is a fund under the statute that allows for


the development of co-operatives across Europe? Surely the Government would be in favour of that. It would be a fund similar to the Co-operative Development Agency over which the Government presided and to which they gave funds. We want diversity, choice and competition in our economy.

Mr. Turner: I am sure that the Minister has taken note of those comments which, again, show the importance of the co-operative system.

Mr. Thomas McAvoy: Will my hon. Friend press the Minister to ensure that the Government are aware of the innovative proposals in the statute that would allow European co-operatives to issue investors' shares and non-users' shares in addition to the traditional redeemable and transferable power value shares?

Mr. Turner: That is an important aspect of the recommendations in the statute.

Mr. John McFall: Is my hon. Friend aware that co-operative banks have a 17 per cent. share of the market in the EC and that our own, dear Co-operative bank has more than 1·5 million customers?

Mr. Turner: That speaks for itself. I hope that the Minister has taken note of that important fact.

Mr. Alun Michael: I am sure that my hon. Friend will want to draw to the Minister's attention the importance and weight of the co-operative sector, which has been illustrated by several comments. Is it not of the greatest importance that the European co-operative statute would run parallel to the European companies statute? It will therefore create a level playing field between the co-operative and private sector of the economy, which is surely consistent with what we all seek within Europe and the United Kingdom. Will my hon. Friend invite the Minister to mention that aspect?

Mr. Turner: I will most definitely take the opportunity to invite the Minister to comment positively on that aspect in his speech.

Mr. Ken Purchase: I thank my hon. Friend for giving way yet again—in the middle of his speech, I hope. May I remind him that there are no fewer than 15 million members of co-operatives in the European Community, owning no fewer than 16,000 shops with an annual turnover—this shows our European credentials of about 25 billion ecu? Some 8 million of those members are in the United Kingdom, and they own 4,650 shops, 90 of which are super-stores. Will my hon. Friend respond?

Mr. Turner: rose—

Mr. Deputy Speaker (Mr. Geoffrey Lofthouse): Order. I hope that hon. Members will now act in a more dignified and serious way.

Mr. Turner: I hope that we are treating the matter in a serious and dignified way, Mr. Deputy Speaker. I am sure that that is what all my hon. Friends who are here to represent the co-operative movement are doing. The reason why we are taking the matter so seriously is that, as my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase) has just said, we speak for 8 million consumers—8 million subscribing members of

co-operatives who are looking forward to a new development that will extend co-operation across frontiers and enable our co-operatives to meet up with many more millions of co-operatives over in Europe.

Mr. George Foulkes: As my hon. Friend knows, I represent a rural constituency. I am sure that he will be aware that, in the common market, more than half the agricultural production is harvested and processed by co-operatives —indeed, the Co-operative Wholesale Society is the biggest farmer in the United Kingdom. Does my hon. Friend accept that we are talking not just about retail and banking activity but about agricultural production?

Mr. Turner: I am grateful to my hon. Friend for those comments, which again explain how important it is that the co-operative statue is granted and that it becomes a reality.

Mr. Mike Gapes: Is my hon. Friend aware that large numbers of people work in the co-operative retail sector? I understand that there are about 200,000 in the European Community as a whole and that some 81,000 of them work in retail co-operatives in this country.
Unlike my hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes), I do not represent a rural constituency. We have had a large number of problems in the co-operative movement in recent years, but, despite the recession and the economic problems faced by the whole retail sector, the retail side of the co-operative movement is still there. It is to be hoped that, over the next few years, under a Labour Government, it will be able to rebuild and re-establish itself as it should, not just in Britain but in co-operation with other co-operative retail societies and their equivalents in other European countries.

Mr. Turner: I thank my hon. Friend for those comments. With 81,000 employees in Great Britain, the co-operative movement is a very significant employer. It has a great responsibility in terms of employment—not just for those 81,000 jobs but for the many thousands of other jobs throughout the country which are linked to co-operative purchasing or which rely on co-operatives.

Mr. Ian Davidson: Unlike my hon. Friend the Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes), I do not represent a rural constituency. I represent a shipbuilding constituency, which will remain a shipbuilding constituency, thanks to the co-operation and help of many of my colleagues. Is my hon. Friend aware that 31 per cent. of the food market in Denmark and about 8 per cent. in Great Britain is supplied by consumer co-operatives? We do not agree that those figures are admirable—they should be increased.

Mr. Turner: I thank my hon. Friend for his comments. I hope that the Minister has taken note of that significant information, because it has a great bearing on the campaign that we are waging in co-operatives in the United Kingdom to become part of the wider co-operatives movement in Europe.
I hope that the powerful case that has been made by my colleagues from the co-operative parliamentary group has convinced the Minister of the fairness in creating a level playing field between co-operative and mutual businesses


and private European companies in the single market. On behalf of all my colleagues in the co-operative parliamentary group and the wider co-operative movement, I sincerely hope that the Minister can support—

Mr. Sheerman: I shall comment on not only the content of my hon. Friend's speech but the serious and dignified way in which he delivered it. This Adjournment debate has been used probably in a better humoured and more informed way than most Adjournment debates—it gives credit to the Adjournment debate rather than anything else and I congratulate him on so using it.

Mr. Turner: I am grateful to my hon. Friend for his comments.
In all our deliberations in the co-operative movement, I hope that we will approach these matters in a dignified and businesslike way, yet, at the same time, recognise the human side of the way in which our co-operative movement operates. We are about people—we put people first. I hope that the Government will recognise that in their consideration of our needs and that the Minister will support the case that we have made.

The Economic Secretary to the Treasury (Mr. Anthony Nelson): I congratulate the hon. Member for Wolverhampton, South-East (Mr. Turner) on securing this Adjournment debate on the regulation of cooperatives in the European Community. In doing so, I shall add a word of congratulations to the phalanx of supporters who surround him on this occasion. The performance of Labour Members in this Adjournment debate would have done credit to a champion team of tag wrestlers. Although the Labour Benches are more populated than the Conservative Benches, I am sure that the sentiments expressed by hon. Members about the importance and extent of the co-operative movement, the community contribution that it makes in a variety of ways and its size will be echoed and shared by many Conservative Members.
I know about the long interest of the hon. Member for Wolverhampton, South-East in this subject, his life time involvement in the co-operative movement and his continuing strong interest in co-operatives, both in the House and outside. He is still chairman of the parliamentary co-operatives group. In that capacity, he and other hon. Members—it is an all-party group—make an important contribution in making the Government and Parliament aware of the important contribution of co-operatives. I share the hon. Gentleman's view of the importance of the co-operative sector in the United Kingdom and take note of his arguments in favour of the European co-operative statute, which is currently under negotiation.
I am well aware of the success enjoyed by many types of mutual organisations, including co-operatives. As the hon. Gentleman knows, most organisations in Great Britain that conduct their business according to the co-operative principles choose to register under the Industrial and Provident Societies Act 1965. There are more than 11,000 such societies, with a total membership of more than 10 million and total assets well in excess of £30 billion. Retail societies provide services to almost 7

million members. They range from corner shops to supermarkets and department stores, as well as public houses and hotels. Other societies cover an enormous diversity of activities.
The traditional values on which co-operatives are based, including the promotion of mutual self-help, may seem to some to be rather out of step with the current highly competitive markets in which many of them operate. But the large number of people who continue to enjoy the benefits of membership clearly demonstrate that co-operatives still have a useful role to play. The Government believe that co-operative values are worth protecting and fostering. Co-operation and competition go hand in hand and history has shown that the movement has faced many challenges and has demonstrated the flexibility, willingness and ability to adapt to those changes.
The hon. Member for Wolverhampton, South-East highlighted the EC proposals, particularly those for a European co-operative statute and the advantages that it may offer to co-operative organisations which operate in more than one member state, or which are contemplating doing so. The statute is one of three related proposals made by the Commission on organisations in the co-operative, mutual, voluntary and charitable sectors—the so-called economie sociale.
The stated aim of the Commission is, as the hon. Member for Wolverhampton, South-East said, to create a level playing field for those organisations by allowing them to take advantage of the single market on an equal footing with companies, without having to convert and so lose their current status and character. The Commission has also made it clear that it believes that the statutes form a coherent package and that it expects them to be implemented simultaneously.
The content of the economie sociale statutes and the speed with which discussions on them proceed will depend heavily on developments on the company statute. However, several working group meetings have already taken place in Brussels and officials have embarked on the first article-by-article reading of the co-operative statute.
A year ago, the Government submitted an explanatory memorandum to Parliament, which set out our preliminary views on the Commission's proposals. We agreed that organisations in the economie sociale should be free to take advantage of the single market, but we expressed some doubts that national bodies wishing to operate in more than one member state experienced difficulties in doing so and that there was a useful role for the new legislation proposed by the Commission to play.
To determine the extent to which there was a need, or demand, for EC legislation on the economic sociale, the Government undertook a consultation exercise last year. A wide range of organisations in the co-operative, mutual and charitable sectors was consulted. About 1,200 consultation documents went out to those involved. Views were sought on a variety of issues including the extent of problems under the existing legal framework, the advantages and disadvantages of the statutes and the likelihood that organisations would make use of them. Comments were also invited on the detailed provisions of the statutes and on their interaction with the current EC and national laws.
The Government are now analysing carefully the responses to the consultative document. Officials in the


relevant Departments are considering the policy implications of the comments that we have received. Several detailed responses were received and a few meetings have already been held between officials and respondents, including a particularly helpful exchange of views with the United Kingdom Co-operative Council, which represented the views of the co-operative movement in its submissions.
It is clear from the speech and the interventions that have been made tonight that the consultation document and the future of the co-operative movement have attraccted close attention from Members of Parliament. Judging by the importance which they attached to the size and influence of the movement, I hope that they will continue to take part in the consultation process as the Government work on the policy implications of the statute.
I noted in particular and welcomed the important contributions made to tonight's debate by the hon. Members for Feltham and Heston (Mr. Keen), for Paisley, South (Mr. McMaster), for Huddersfield (Mr. Sheerman), for Glasgow, Rutherglen (Mr. McAvoy), for Dumbarton (Mr. McFall), for Cardiff, South and Penarth (Mr. Michael), for Wolverhampton, North-East (Mr. Purchase), for Carrick, Cumnock and Doon Valley (Mr. Foulkes), for Ilford, South (Mr. Gapes) and for Glasgow, Govan (Mr. Davidson). What a roll of honour. I hope that I have not missed anyone out.
I hope that we shall shortly be in a position to present a further explanatory memorandum to Parliament, reporting the results of the consultation exercise. I am sure that the hon. Member for Wolverhampton, South-East will understand that it would not be appropriate for me to comment in detail on this, or the implications of the exercise for the United Kingdom's negotiating position. I should like to respond, however, to the points that he has raised by making some general remarks about the Government's policy.
Our view remains that co-operatives and other organisations in the economie sociale should be able to take full advantage of the single market. I believe that the hon. Gentleman shares that view. But we need to gauge carefully, by examining the results of the consultation exercise and from our other contacts with the relevant national organisations, whether they are keen to operate throughout the Community, whether they already do so and, if so, what problems, if any, they are facing.
To the extent that difficulties exist in carrying on cross-border activities, we then need to assess whether the Commission's proposals offer the best way of dealing with them. Among other things, we will have to weigh up carefully the perceived advantages of the new legal framework that the statutes offer, against the cost to member states of having to set up and administer separate regulatory systems or tax regimes for European entities.
It is also essential that the legislation does not compromise the checks and controls provided by the present framework of national legislation, nor contain loopholes which could be exploited by the unscrupulous. We need to make sure that the statutes provide adequate protection for members of the new entities, as well as for those who have dealings with them.
I would not want to pretend that the negotiations on the statutes is a straightforward task, but in that connection, we will be looking closely at the responses we have received to questions in the consultative document on

transfer of registered office from one member state to another, on arrangements for supervising the new bodies, on accounting and auditing provisions and on insolvency proceedings. We shall also, of course, want to ensure that those organisations that choose not to operate as a European entity do not suffer any unfair disadvantage compared with those that do.
I have already cited the examples of possible drawbacks and dangers. We must try, at all cost, to avoid some of them. The proposals raise many complex issues which need to be discussed and satisfactory solutions found. Moreover, national legislation in this area varies considerably between member states and opinions tend to differ on even the most apparently basic concepts—such as defining the activities and constitution of a co-operative society.
In our negotiations we will need to bear in mind this background of very different national legislation, varying levels of regulation and different types of organisation across the Community. We must be sure that whatever is to be agreed will work well both in the United Kingdom and in other member states.
It might be suggested that the Government are adopting an unduly cautious approach to the Commission's proposals for legislation on co-operatives and other organisations in the economie sociale. But I think that it is vital to establish at an early stage what difficulties the proposals are designed to address, what opportunities they seek to offer to national entities and whether those entities are likely to take advantage of the opportunities made available to them. Having done that, it is only right to try to anticipate the potential dangers and problems which the proposals raise, alongside the obvious advantages, and to provide constructive criticism.
Let me stress, however, that in all our deliberations, the Government are driven first and foremost by a keen interest in the welfare of co-operatives and of other organisations in the economie sociale sector.

Mr. Jon Owen Jones: Can I persuade the Minister to explain to the House some of the dangers that he foresees when co-operatives work across national boundaries, as the Commission has suggested? He has referred to those dangers several times, but I am unaware of them, as, I suspect, are many of my colleagues. It would help the House if the Minister could tell us.

Mr. Nelson: I am grateful to the hon. Member for Cardiff, Central (Mr. Jones) for intervening. I have tried to identify some of them during my remarks. There are certain problems associated with the rights of organisations to come into this country under the banner of being a European co-operative organisation under this statute, and we would have to be satisfied that they met the same stringent standards as are subscribed to by the co-operative movement already established in this country. That is one thing on which we would need to be satisfied.
Perhaps more controversially, there are the difficulties that we still envisage within the accompanying directive on worker participation which would go with the statute in this area. Perhaps I could just say a brief word about that in particular, because the experience of the company statute, which has been under discussion for many years now, shows how difficult it can be to reach agreement in this area. The rationale behind the co-operative statute


and the two related proposals is to give organisations in the co-operative, mutual and voluntary sectors the same competitive opportunities as companies. Unless agreement is reached on the European company statute, the case for pushing ahead with the economic sociale proposals will be seriously weakened. However, a number of problems remain unresolved on the European statute, including, in particular, important political differences between member states on the provisions for compulsory worker participation in any European company formed under the statute.
The Commission's proposals for co-operatives and other economic social organisations also contain provisions for compulsory worker participation which are likely to cause similar problems for the United Kingdom. These are contained in directives which form part of the three statutes.
The involvement of employees is a vital component in the business plan of all forward-looking companies and organisations wishing to compete effectively in the expanding European market of the 1990s. The United Kingdom is firmly committed to the principle of employers informing and, where appropriate, consulting their employees about matters which affect them. The traditional voluntary approach, which has worked so well for us here, gives employers and employees the flexibility to agree, at local level, the employee involvement arrangements that suit them best.
We will take careful note of all the comments that we have received here tonight and also outside the House. As far as possible, and where they are consistent with wider Government concerns, we will try to reflect respondents' views in the stance that we adopt towards the Commission's proposals. In the final analysis, our decisions will be influenced by the desire to avoid adding to the administrative burden on co-operatives and other organisations that come under the economie sociale banner.
Above all, we must avoid falling into the trap of letting a desire for a level playing field overwhelm the need for a practical and workable approach to the regulation of co-operatives and others, both in the United Kingdom and throughout the European Community. In finding a way forward, we will continue to rely on the helpful and thoughtful contribution, as well as the extensive experience, of the hon. Member for Wolverhampton, South-East and his Friends.

Mr. Turner: With the leave of the House, Mr. Deputy Speaker, may I, on behalf of all my parliamentary colleagues, express sincere thanks to the Minister for his positive and encouraging speech tonight? We just hope that he will use his good offices to seek to bring to a speedy and successful conclusion the implementation of the statute. I thank him sincerely for his thoughtful and helpful contribution.

Question put and agreed to.

Adjourned accordingly at twelve minutes past Twelve midnight.